U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No.: 0-24804
December 31, 1998
FEATHERLITE, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-1621676
(State of Incorporation) (IRS Employer Identification Number)
Highways 63 and 9
Cresco, Iowa 52136
(319) 547-6000
(Address of principal executive offices;
Issuer's telephone number)
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, without par value
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the Common Stock held by non-affiliates of the
registrant as of March 9, 1999, was $14,024,000 (based on the last sale price of
the registrant's Common Stock on such date).
Shares of without par value Common Stock outstanding at March 9, 1999:6,500,051.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the indicated Part of
this Form 10-K: (1) Annual report to shareholders for the fiscal year ended
December 31, 1998 - Part II; (2) Proxy statement for 1999 Annual Meeting - Part
III.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Featherlite, Inc. (formerly Featherlite Mfg., Inc.) was organized by
current management as a Minnesota corporation in 1988 to acquire the assets of a
non-affiliated business which manufactured trailers since the early 1970s under
the FEATHERLITE(R) brand name. The Company designs, manufactures and markets
over 400 models of both custom made and standard model specialty aluminum and
steel trailers through a network of over 240 full-line dealers and over 1,000
limited-line dealers located in the United States and Canada.
In 1996, the Company began manufacturing and marketing a custom luxury
motorcoach primarily through the acquisition of the assets of Vantare
International, Inc., which is among the leaders and fastest growing companies in
the high-end motorcoach industry. In 1998, the Company expanded its presence in
this market by acquiring the assets of Mitchell Motorcoach Sales. Entry into the
luxury motorcoach market was consistent with Featherlite's long-term growth
strategy of product diversification. These motorcoaches are marketed under the
trade name "VANTARE by FeatherliteTM" and Featherlite Vogue(R). Beginning in
1999, these motorcoaches will be marketed under the trade names Featherlite
Vantare(R), Featherlite Vogue(R) and Featherlite Luxury CoachesTM.
The Company markets its primary trailer products under the
FEATHERLITE(R) brand name. FEATHERLITE(R) trailers are made of aluminum, which
differentiates the Company from most of its competitors which primarily make
steel trailers. Aluminum trailers are superior to steel in terms of weight,
durability, corrosion resistance, maintenance and weight-to-load ratio. Although
the Company's focus is on manufacturing and marketing aluminum trailers, it also
markets a line of composite steel and aluminum trailers under the
FEATHERLITE-STL(R) series (replaced Econolite beginning in 1997) and DIAMOND
D(R) brands in order to provide dealers and customers with a high quality, but
less expensive, alternative to the aluminum trailer.
Management believes that the Company's growth is being caused by
overall market expansion, particularly in uses related to entertainment and
leisure, and by the Company increasing its share of a fragmented trailer market.
Demand for the Company's products is being significantly driven by the
lifestyles, hobbies and events that are important to Featherlite's target
customers. Growth in those product and service categories which could use or
require a high quality trailer is creating increased demand for the Company's
products. Those categories and uses include pickup trucks, sport utility
vehicles, all-terrain-vehicles, personal watercraft and snowmobiles; auto races,
classic car shows and motorcycle rallies; hobby farming and raising and showing
horses; art and craft fairs and expositions; and vending trailers for selling
crafts, food and other concessions, such as T-shirts or novelty items. Examples
of other users of the Company's trailers include lawn care services, house
painters, construction crews, traveling museum exhibitions, concert tours,
musical groups and fiber optic utility crews that require clean environments in
which to splice and store cable. The number of affluent retirees and business
owners who represent the target market for luxury motorcoaches produced by
Featherlite is continuing to grow at a healthy pace.
The Company continually monitors the market for opportunities to
leverage the FEATHERLITE(R) brand name and its expertise. Featherlite pioneered
the introduction of standard model aluminum horse and livestock trailers, which
traditionally had been custom made. It has also responded to the increasing
demand for customizing the interiors of trailers, a capability which helps
distinguish the Company from its competition. Typical interiors range from a
simple interior, such as a dressing room, closet and mirror in the nose of a
horse trailer, to sophisticated, such as upholstered seating and sleeping areas,
kitchens, bathrooms and modern electronics, including fax machines, cellular
phones and satellite dishes, in race car transporters and luxury custom coaches.
In addition, Featherlite refines the products it already offers by introducing
new features to satisfy the increasing demands of its customers.
The Company pays special attention to its target customers and attempts
to reach them through a variety of media. Unlike most of its competition,
Featherlite is large enough to benefit from national advertising and sponsorship
of major events which are visible to its customers. These sponsorships include
Featherlite's designation as the "Official Trailer" of NASCAR, CART, NHRA, IRL,
<PAGE>
ARCA, ASA, World of Outlaws,,the Indianapolis Motor Speedway and Speedway Motor
Corporations five race tracks. Featherlite has an association with the All
American Quarter Horse Congress, the National Western Livestock Show and Rodeo,
United States Team Roping Competition, Professional Bull Riders, Black Hills
Livestock Show and the National High School Finals Rodeo. The Company's luxury
motorcoach divisions are the "Official Coach" of NASCAR, NHRA, IRL and
Sportscar. Featherlite intends to expand its promotional activities as the
Company enters new markets.
Specialty Trailer and Motorcoach Industry
The Company operates in two principal industries and business segments:
specialty trailers and motorcoaches, as discussed in the section labeled
"Management's Discussion and Analysis" which appears in the Company's Annual
Report to Shareholders for the year ended December 31, 1998 which is
incorporated herein by reference.
Specialty Trailer Industry
Specialty trailers are designed for specific hauling purposes rather
than for general commercial freight. The customers of the specialty trailer
industry consist of broad segments of the general public, such as hobbyists,
sports enthusiasts, farmers and ranchers, engaged in the activities for which
particular trailers are designed. In contrast, commercial freight trailers are
generally made for non-specific purposes and the customers are typically
trucking companies and manufacturers with fleets of trucks and trailers. Unlike
the commercial freight trailer industry which is dominated by a few large
manufacturers, the specialty trailer industry is comprised of many small
manufacturers. No published statistics are available on the size of the
specialty trailer industry or its subcategories. However, the Company believes
that there may be as many as 500 manufacturers of specialty steel trailers in
the United States, of which approximately 20 manufacture specialty aluminum
trailers.
Historically, specialty trailers were made of steel, principally
because they cost approximately 30% to 40% less than trailers made primarily of
aluminum. Entry into the production of steel trailers is relatively easy and
inexpensive because of the widespread availability of steel components and
simple production techniques. The relative lack of barriers to entry into the
steel trailer industry, differing regional demands for trailer types and the
relatively high cost of long distance delivery have contributed to the
fragmented status of the specialty trailer industry. As a result, specialty
trailer manufacturers generally produce relatively small numbers of trailers for
sale in limited geographical markets without the efficiencies of high volume
production, quality controls, significant warranty and service capabilities,
substantial dealer networks, or national advertising and marketing programs. In
comparison, production of aluminum trailers requires larger capital investment
in dies, extrusion molds and equipment, more sophisticated welding and
production techniques, and greater design capabilities to maximize the
strength-to-weight ratio advantage of aluminum over steel.
In dollar sales, the Company estimates that aluminum trailers presently
constitute five to ten percent of the total market for specialty trailers and
that this percentage is increasing. The trend of the trailer market to migrate
toward aluminum models is driven by a number of factors. Aluminum trailers offer
substantial advantages over steel trailers in weight, ease of maintenance,
durability and useful life. Aluminum trailers do not rust and weigh 30% to 40%
less than comparable steel models. Maintenance is substantially less on aluminum
trailers because of the absence of rust and because they typically are not
painted or are pre-painted with a baked-on enamel. As a result, aluminum
trailers can be offered with superior warranties and provide greater customer
satisfaction. The lighter weight of aluminum trailers reduces the demands on the
towing vehicle, affords better gas mileage and allows a greater percentage of
gross trailer weight for carrying cargo.
Motorcoach Industry
Bus conversion motorcoaches are the most luxurious of all recreational
vehicles. They represent a unique market niche, with selling prices ranging from
$500,000 to $900,000 or more. These motorcoaches are made from a bus shell for
conversions that is purchased and completed to provide an interior area designed
to the customer's specifications. It has been estimated that this segment of the
RV market experienced more than a 30% growth between 1990 and 1994 and this
growth is expected to continue in the future. A large part of the target market,
the 45 to 64 age group, is expected to grow 33% this decade alone. Sales of
these vehicles will be boosted because this group is expected to retire earlier
and have a greater affluence than previous generations. The Company believes
that there are presently seven or more companies in this industry.
<PAGE>
Products and Services
The Company's primary business activity is the manufacture and sale of
specialty aluminum trailers under the FEATHERLITE(R) brand name. In 1996, the
Company began manufacturing and marketing a custom motorcoach under the name
"VANTARE by Featherlite". In 1998, the Featherlite Vogue brand of motorcoaches
was added when the Company purchased the assets of Mitchell Motorcoach Sales,
Inc. In addition, the Company manufactures and sells combination steel and
aluminum trailers under its FEATHERLITE-STL(R) series (formerly Econolite) and
DIAMOND D(R) brand names, sells replacement and specialty parts, and coordinates
delivery of completed trailers to customers. Rework and warranty services are
also provided for Company built trailers at the Company's facilities and dealer
locations. For 1998, over 95% of the Company's revenues were derived from
trailer and motorcoach sales.
The following data illustrate the percentage of the Company's net
trailer and motorcoach sales by product type in 1996, 1997 and 1998 (dollars in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1996 1997 1998
-------------------------------- ------------------------- ---------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Horse $29,697 29.9% $31,202 23.2% $38,637 20.2%
Livestock 17,789 17.9% 21,468 16.0% 20,866 10.9%
Car and race car/specialty
transporters
15,847 15.9% 24,797 18.5% 29,458 15.4%
Utility and recreational 7,206 7.3% 8,897 6.6% 9,707 5.1%
Commercial 10,150 10.2% 7,244 5.4% 7,741 4.1%
Motorcoaches 14,785 14.9% 34,355 25.6% 76,522 40.1%
--------------- --------------- -------------- -------------- -------------- --------------
Net Trailer & Motorcoach
Sales $95,474 96.1% $127,963 95.2% $182,931 95.8%
Parts, Deliver & Scrap 3,855 3.9% 6,424 4.8% 7,943 4.2%
--------------- --------------- -------------- -------------- -------------- --------------
Net Sales $99,329 100.0% $134,387 100.0% $190,874 100.0%
======= ====== ======== ====== ======== ======
</TABLE>
Trailers
The Company is unique among trailer manufacturers because of the many
types of trailers it makes. The Company's FEATHERLITE(R), FEATHERLITE-STL(R)
series and DIAMOND D(R) trailers may be broadly classified into several trailer
types, which can be further subdivided into over 400 models depending on their
intended use and resulting design. The Company's primary trailer types are
horse, livestock, utility recreational, commercial and car trailers as well as
race car and specialty transporters. Within these broad product categories, the
Company generally offers different features, such as various lengths, heights
and widths, open and enclosed models, gooseneck and bumper pulls, straight and
slant loaders, and aluminum, steel, fiberglass and wood frames, floors, sides
and roofs. In 1996, the Company discontinued manufacturing semi trailers which
were included in the commercial category. The Company believes FEATHERLITE(R)
brand trailers, which are "all aluminum" with the exception of steel axle and
hitch parts, enjoy a premier image in the industry. Sales of FEATHERLITE(R)
brand trailers currently represent over 90% of the Company's total trailer
sales. FEATHERLITE-STL(R) series and DIAMOND D(R) brand trailers, which
generally are a composite of steel frame, aluminum skin and galvanized roof,
allow the Company to place its product line at the lower-priced end of the
market.
FEATHERLITE(R), FEATHERLITE-STL(R) series and DIAMOND D(R) trailers are
built as standard models or to customer order from selected options. Depending
on the model, the Company's trailers generally include name brand tires,
<PAGE>
reflectors and exterior running and license plate lights, sealed and enclosed
wires, and safety chains and breakaway switches. Popular options to standard
designs include paint schemes, logos, lettering and graphics, winches and
generators, viewing platforms, workbenches and cabinets, vents and other airflow
designs, roll-up doors, access and side doors and windows, aluminum wheels and
hubcaps, and hydraulic or air brakes.
Trailer design traditionally has been utilitarian. Recently, however,
the demand for trailers with special amenities and custom designed features has
increased dramatically. For that reason, the Company's Interiors Division offers
options ranging from simple shelves, cupboards, lockers and dressing rooms to
complete living quarters, including upholstered furniture, electronics, wood or
laminated Formica finishes, air conditioning, refrigerators, dinettes and bath
packages. The Company stresses its ability and willingness to build trailers
"from the ground up" with unique, even luxurious, custom designed features and
amenities tailored to customer specifications. This distinguishes the Company
from many other trailer manufacturers.
In addition to custom designed trailers, the Company manufactures
standard model trailers for inventory which are available for immediate delivery
to dealers. In an industry consisting primarily of manufacturers who custom
build trailers, the Company's introduction in 1991 of standard model aluminum
trailers represented an innovative step. Standard model trailer sales now
represent approximately 48% of the Company's total trailer sales. The Company's
dealer network has enthusiastically endorsed and supported the standard model
concept.
Retail prices for the Company's standard aluminum model trailers range
from approximately $1,200 for the least expensive snowmobile trailer to over
$300,000 for a custom built race car transporter and hospitality trailer and
over $900,000 for a luxury coach. Representative FEATHERLITE(R) aluminum trailer
retail prices are approximately $7,200 for a bumper pull livestock trailer,
$8,200 for a two horse trailer, $16,000 for a gooseneck car trailer.
Motorcoaches
The Company offers three motorcoaches based on various models made from
a single bus shell manufacturer (Prevost Car Company), the XL-40 and XL-45 and
the H3-45. Even though the "H" body style is much taller and the layout is
considerably different than a typical XL motorcoach, it has become the most
popular model requested by customers. The Company also now offers a "slide-out"
model which expands the livable space within the motorcoach. With the addition
of the Featherlite Vogue(R) brand, the Company also offers a high quality Class
A series motorcoach, a living unit entirely constructed on a base, specially
designed motor vehicle chassis.
The Company's goal is to produce the best performing and most reliable
coach while keeping a low overall gross weight and extremely low ambient noise
level. It incorporates into motorcoaches many of the good features and quality
often present in luxury yachts which were previously developed by Vantare
International, Inc. when it was in the business of building yachts.
About 75% of the coaches are built to specific customer order from
selected options. The remainder are motorcoaches which are built for
demonstration at particular shows or events and resale purposes. Retail prices
range from about $400,000 to $900,000 or more. There is a risk that certain of
the coaches built on a speculative basis may not be sold on a timely basis and
at normal profit margins.
The Company also sells used motorcoaches which are taken as trade-ins
from customers on new coaches or on a consignment basis. Repair services are
provided for coaches of customers and others at the Vantare facility in Sanford,
Florida and the Vogue facility in Pryor, Oklahoma, as well as at a Company
service center in Mocksville, North Carolina and Cresco, Iowa.
Other Business Activities
In addition to the manufacture and sale of specialty trailers and
motorcoaches, the Company sells replacement and specialty trailer and coach
parts to its dealers and to others. It coordinates delivery of completed
trailers to customers and to dealers for a fee and in 1998 delivered
approximately 50% of the trailers sold to dealers, with the remainder picked up
at its Iowa facilities. The Company owns and maintains a fleet of trucks and
leases semi tractors for this purpose. The Company is a licensed aircraft dealer
and believes that dealing in used aircraft is complementary to its principal
business. Featherlite Aviation Company, a wholly-owned subsidiary of the
<PAGE>
Company, conducts such aircraft dealer activities. Featherlite Aviation Company
currently holds for resale two used aircraft. The purchase, sale, use and
operation of aircraft and the volatility in the sales volume and value of
aircraft create risks to the Company and its operating results. The Company
maintains liability insurance policies relating to its aircraft in an amount it
believes to be adequate, but there is no assurance that its coverage will
continue to be available at an acceptable price or be sufficient to protect the
Company from adverse financial effects in the event of claims. Gains on aircraft
sales are included in the other income caption in the Company's Statement of
Income. The Company's other business activities, excluding aircraft, in the
aggregate, accounted for approximately 3.9%, 4.8% and 4.2% of the Company's net
sales for 1996, 1997 and 1998, respectively.
Marketing and Sales
Dealer Network
The Company markets its products primarily through a network of over
240 full-line dealers and over 1,000 limited-line dealers located in the United
States and Canada, and one distributor serving Alberta and British Columbia,
Canada. Dealers typically handle only a portion of the entire FEATHERLITE(R),
FEATHERLITE-STL(R) series and DIAMOND D(R) product lines and may sell other
steel trailer brands. Featherlite dealers are not prohibited by their agreements
with the Company from selling other brands of aluminum trailers but generally do
not do so. No single dealer represents more than 10% of the Company's net sales.
The Company's top 50 dealers accounted for approximately 54% of the Company's
net trailer sales for 1996, 1997 and 1998. For these periods, 82% or more of the
Company's trailer sales were made by its dealer network, with the remainder
representing direct Company sales to end users. Company sales to end users are
primarily drop deck trailers, specialty trailers and race car transporters. For
these periods, approximately 98% of the number of units sold were sold by the
dealer network.
Dealers and distributors sell FEATHERLITE(R), FEATHERLITE-STL(R) series
and DIAMOND D(R) products under contractual arrangements which can be terminated
by either party on specified notice. Laws in certain states govern terms and
conditions under which dealers and distributors may be terminated. Such laws
have not materially adversely affected the Company to date. Changes in dealers
and distributors take place from time to time. The Company believes that a
sufficient number of prospective dealers exists across the United States and
Canada to permit orderly transitions whenever necessary. The Company is
continually seeking to expand the size and upgrade the quality of its dealer
network. The Company believes that significant areas of the United States and
Canada are not served by a sufficient number of dealers and the Company intends
to increase substantially its number of dealers over the next several years.
The Company employs territory managers to assist in the marketing and
sales process. These managers assist the Company's dealers in coordinating the
selection of custom options by customers and the production of orders. They also
participate with the dealers at trade shows, fairs, rodeos, races and other
events to promote the FEATHERLITE(R) brand. Factory representatives also
actively seek out potential new dealers.
All motorcoaches are sold directly by Company personnel to end user
customers. Company sales representatives participate in trade shows, fairs,
motorsports races and other events to promote the "VANTARE by Featherlite(R)"
and Featherlite Vogue(R) motorcoaches.
Financing
A substantial portion of the Company's sales of motorcoaches and
trailers are paid for within 10 days of invoicing. The Company has arrangements
with NationsCredit Commercial Corporation, Deutsche Financial Services Corp.
(formerly ITT Commercial Finance Corp.), Bombardier Capital, Green Tree
Financial Servicing Corporation and TransAmerica Commercial Finance Corp. to
provide trailer floor plan financing for its dealers. Green Tree Financial
Servicing Corporation and Featherlite Credit Corporation, a corporation owned by
certain of the Company's officers and directors, provides retail financing to
end user customers of the Company's dealers. Under these floor plan
arrangements, the Company is required in certain circumstances to guarantee
certain debt, or repurchase for the remaining unpaid balance including finance
charges plus costs and expenses, any repossessed trailers financed through such
arrangements. Although the Company has not been required to make any significant
payments or repurchases to date, there can be no assurance that such obligations
will not, in the future, adversely impact the Company. There is no recourse to
the Company on these retail financing arrangements.
<PAGE>
The Company has arrangements with several companies to provide
motorcoach retail financing to end user customers. There is no recourse to the
Company on these retail financing arrangements. The Company has a wholesale
floor plan agreement with a company to finance a portion of the new and used
motorcoaches held in inventory.
Promotion
The Company's marketing activities are designed primarily to
communicate directly with consumers and to assist with selling and marketing
efforts of the dealer network. The Company promotes its products directly using
print advertising in user group publications, such as Quarter Horse Journal,
Successful Farming, Snowmobile, Sno Goer and National Association of Stock Car
Auto Racing ("NASCAR") Winston Cup Series event programs. A series of product
brochures, product videotapes and other promotional items are available for use
by the dealers. The Company also advertises on television, primarily on cable
television racing programs.
The Company promotes its motorcoaches directly in user group
publications, such as the Family Motorcoaching Magazine, The Robb Report, The
DuPont Registry and the RV Trader. In addition, the Company participates in the
Family Motor Coach Association rallies twice each year, the Tampa RV Show and
numerous other shows and rallies and is represented at motorsports events where
other Featherlite products are promoted and where Featherlite already has a
customer base.
An example of the Company's specialized niche market promotional
efforts is the motor sports industry. Featherlite currently is the "Official
Trailer" of NASCAR, CART, NHRA, IRL ARCA, ASA, NHRA, World of Outlaws, the
Indianapolis Motor Speedway and Speedway Motor Corporations five race tracks and
the "Official Coach" of NASCAR, IRL, NHRA and Sportscar. Featherlite is the
title sponsor of the NASCAR Featherlite Southwest Tour and the NASCAR
Featherlite Modified Tour. The 1998 NASCAR Featherlite Southwest Tour is
comprised of sixteen events in various cities in Arizona, California, Nevada and
Colorado. The NASCAR Featherlite Modified Tour schedule takes place primarily in
the northeastern United States. The Company expects to continue to design and
build trailers to fit the needs of all types of racing, including NASCAR, NHRA,
Automobile Racing Club of America ("ARCA"), IndyCar, nostalgic, sprint car, off
road, boat, motorcycle and motocross.
In addition to the racing industry, the Company sponsors or is
associated with the All American Quarter Horse Congress, the Professional Bull
Riders Association, United States Team Roping Championship, the American Paint
Horse Association and the National Western Livestock Show as well as various
rodeos and state and local fairs and expos. Annually, Featherlite territory
managers attend in excess of 250 races, rodeos, fairs, trade shows and other
special events. The Company's dealers attend approximately 1,200 to 1,400 such
events each year.
<PAGE>
Competition - Specialty Trailers
The specialty trailer industry is highly competitive, especially with
respect to the most commonly sold models, such as one and two horse trailers.
Competition is based upon a number of factors, including brand name recognition,
quality, price, reliability, product design features, breadth of product line,
warranty and service. The primary competition to FEATHERLITE(R) aluminum
trailers are steel trailers, which typically sell for approximately 30% to 40%
less but are subject to rust and corrosion and are heavier. There are no
significant technological or manufacturing barriers to entry into the production
of steel trailers and only moderate barriers to the production of aluminum
trailers. Because the Company has a broad based product line, its competition
varies by product category. There is no single company that provides competition
in all product lines. Certain of the Company's competitors and potential
competitors are better established in segments of the Company's business. The
Company's principal competitors, all of which are located domestically, include
the following:
Trailer Types Principal Competitors' Brands
Horse and Livestock...................... 4 Star, Barrett, Sooner, Wilson,
Sundowner, Kiefer Built, W-W
Utility.................................. Wells Cargo, PACE, Haulmark
Drop Frame Vans.......................... Kentucky
Car Trailers and HighTech, Competition, Concept,
Race Car Transporters.................... Wells Cargo, Haulmark, PACE,
Sooner
Competition - Motorcoaches
The motorcoach industry is highly competitive, particularly in XL and
high-end Class A models, with seven or more manufacturers. Vantare is the
dominant producer of H model coaches. Competition is based primarily on quality
and price although other factors such as brand name, reliability, design
features, warranty and service are also important. The brand names of the
Company's principal competitors in this industry, all of which are located
domestically, include, among others: Marathon, Liberty, Country Coach, Angola,
Monaco, and Custom.
Manufacturing
The Company manufactures substantially all of its trailers at plants
located in Cresco, Nashua and Shenandoah Iowa. It has an agreement with one
other company to manufacture certain trailers. Under the agreements, the Company
supplies trailer materials and specifications to those manufacturers. The
manufacturers, which are prohibited from manufacturing trailers for any other
entities without Featherlite's consent, cover labor and overhead expenses and
manufacture the trailers for contractually agreed upon prices. Such trailers
constituted approximately 3% of net trailer sales for 1998.
Except for tires, brakes, couplers, axles and various other purchased
items, the Company fabricates its component parts for its trailers. Most raw
materials and standard parts, including aluminum extrusions and sheet metal, are
available from multiple sources. Prices of aluminum, the principal commodity
used in the Company's business, fluctuate daily in the open market. The Company
has obtained fixed price contracts from suppliers for 1999 to reduce the risk
related to fluctuations in the cost of aluminum. There is a risk to future
operating results if the Company is unable to obtain fixed contracts to reduce
the effect of fluctuations in the price of aluminum.
The Company presently purchases substantial amounts of aluminum
extrusions from three major suppliers, Alumax Extrusions Inc., Tifton Aluminum
and Easco Aluminum, and the majority of its sheet metal from two large
suppliers, Reynolds Aluminum Co. and Samuel Whittar. The identity of particular
suppliers and the quantities purchased from each varies from period to period.
The Company has not engaged in hedging or the purchase and sale of future
<PAGE>
contracts other than contracts for delivery to fill its own needs. The Company
has contracts with suppliers to fill a substantial part of its projected need
for aluminum in 1999. In the event that one or more of the Company's suppliers
were unable to deliver raw materials to the Company for an extended period of
time, the Company's production and profits could be materially and adversely
affected if an adequate replacement supplier could not be found within a
reasonable amount of time. The Company has never been unable to obtain an
adequate supply of raw materials. Increases in prices of aluminum and other
supplies may adversely affect sales of the Company's products.
In addition to obtaining long term contracts from suppliers, the
Company may in the future also try to reduce the price risk associated with
aluminum by buying London Metal Exchange hedge contracts or options for future
delivery. These contracts would "lock in" the aluminum cost for the Company for
anticipated aluminum requirements during the periods covered by the contracts.
There is a potential risk of loss related to such contracts if the quantity of
materials hedged significantly exceeds the Company's actual requirements and the
contract is closed without taking physical delivery of the aluminum or if there
is a substantial drop in the actual cost of aluminum in relation to the hedge
contract price which would affect the competitive price of the Company's
product.
In the manufacturing process, the Company seeks to maximize production
efficiency by using weekly production schedules which allocate scheduled
trailers to specific production lines within each plant. The Company generally
follows a build-to-order policy to control inventory levels. If orders cannot be
filled from any inventory maintained by the Company, they are scheduled for
production. Inventory pool trailers may be scheduled to maximize the efficiency
of the production lines.
The Company also utilizes certain production lines solely for standard
model trailers. The Company utilizes an independent outside contractor to
provide customer specified paint and graphic designs on specialty trailers.
There is a risk related to delays in completing trailer delivery to the customer
due to delays by the subcontractor. This could adversely affect reported sales
and operating income.
The Company manufactures all of its motorcoaches at plants located in
Sanford, Florida and Pryor, Oklahoma. Except for the coach shell, engines and
transmissions for Class A models and electronic equipment, various kitchen and
bathroom fixtures and accessories and other purchased items, the Company
fabricates all the components for its coaches, including building the chassis
for Class A type motorcoaches. The Company completes the conversion by finishing
the interior of the purchased shell to the layout and design requirements of the
customer or its specifications. All design engineering, plumbing, cabinetry and
upholstery required to complete the coach is done by Company personnel.
The Company purchases its motorcoach shells from one manufacturer,
Prevost Car Company, Inc. of Sainte-Claire, Quebec, Canada, although the Company
could purchase certain shells from other manufacturers. The Company does not
have any long or short term manufacturing contracts with Prevost. However, the
Company provides Prevost with its estimated yearly motorcoach requirements. Once
Prevost releases an order to production, Prevost becomes obligated to fill the
order and the Company becomes obligated to take delivery of the order. In the
event Prevost was unable to deliver motorcoach shells to the Company, the
Company's revenues and profits could be materially and adversely affected.
The Company purchases engines and transmissions from local dealers. The
Company does have an informal commitment from the dealers for sufficient
transmissions and engines to meet projected requirements for 1999. In the event
the dealers are unable to deliver engines and transmissions to the Company, the
Company's revenues and profits could be materially and adversely affected.
Backlog
At December 31, 1998 the Company had unfilled confirmed orders from its
customers in the amount of approximately $31 million including $19 million in
motorcoach orders, compared with $27 million, including $14 million in
motorcoaches, at December 31, 1997. All orders in backlog at December 31, 1998
are expected to be filled during 1999.
<PAGE>
Quality Assurance
The Company monitors quality at various points of the manufacturing
process. Due to the variety of custom products that the Company builds, employee
skill training and individual responsibility for workmanship are emphasized.
Inventory specialists assess the overall quality, physical dimensions, and
imperfections or damage to the raw materials. Extruded and sheet aluminum which
is outside of specified tolerances is rejected and replaced by the vendor. Line
foremen train and monitor work cells of employees. Quality control inspectors
inspect trailers for quality of workmanship, material quality and conformity of
options to order specifications.
Government and Industry Regulation
The Company and its products are subject to various foreign, federal,
state and local laws, rules and regulations. The Company builds its trailers and
motorcoaches to standards of the federal Department of Transportation. The
Company is a member of the National Association of Trailer Manufacturers
("NATM") and manufactures its trailers to NATM standards. The quality assurance
program in the Company's Interiors Division includes being a member of the
Recreational Vehicle Industry Association ("RVIA"), which requires plumbing,
electrical and gas testing on trailers with living quarters. These tests are
recorded before RVIA certification numbers are affixed to trailers. RVIA
inspectors periodically check the production facility and work in progress to
assure that codes and procedures are met. Infractions can lead to fines or loss
of RVIA membership. The Company is also governed by regulations relating to
employee safety and working conditions and other activities. A change in any
such laws, rules, regulations or standards, or a mandated federal recall by the
National Highway Transportation Safety Board, could have a material adverse
effect on the Company.
Patents and Trademarks
The Company has registered FEATHERLITE(R) as a trademark for use in
conjunction with trailers in the United States, Canada and Germany. In general,
such registrations are effective through the year 2001, with continuous ten-year
renewal periods thereafter. The Company has a United States trademark with
respect to FEATHERLITE-STL(R) series. In October 1995, the Company acquired the
rights to the DIAMOND D(R) trademark and has registered it as a trademark in the
United States and has a trademark application pending in Canada. In 1993, the
Company purchased the rights to two design patents, which expired in 1997,
relating to the V-nose design of certain of its horse, livestock and snowmobile
trailers. The Company believes that the patented designs are useful, but that
the expiration of the patents will not have a material effect on the Company. In
addition, the Company has filed for certain trailer design and utility patents
relating to race car transporters, snowmobile trailers and horse trailers.
The Company has a United States trademark for "VANTARE by
Featherlite(R)" for use in conjunction with motorcoaches and yachts in the
United States and for Featherlite Vogue(R) for motorcoaches in the United
States. The Company is in the process of registering two new trademarks,
"Featherlite Vantare" and "Featherlite Luxury Coaches", for motorcoaches in the
United States.
Warranty
The Company warrants the workmanship and materials of certain parts of
the main frame of its aluminum trailers under a limited warranty for a period of
six years and such parts of certain other Company trailers as well as other
products manufactured by the Company for periods of one to four years. The
limited warranty does not include normal wear items, such as brakes, bearings
and tires. The Company's warranty obligations are expressly limited to repairs
and replacement of parts. Historically, there have been no recalls of the
Company's trailers for replacement of major components or parts and the expense
of warranty claims for repairs or replacement of parts has been less than 1% of
the Company's net sales.
The Company warrants for one year the workmanship and materials related
to certain parts of the motorcoach conversion. Otherwise, warranties applicable
to components purchased from vendors are applicable. The warranty of the
manufacturers' of the shell, transmission and engine generally is for two years.
<PAGE>
Product Liability
Although the Company has never been required to pay any significant
amount in a product liability action, as a manufacturing company it is subject
to an inherent risk of product liability claims. The Company maintains product
liability insurance policies in an amount it believes is adequate, but there is
no assurance that its coverage will continue to be available at an acceptable
price or be sufficient to protect the Company from adverse financial effects in
the event of product liability claims.
Employees
As of December 31, 1998, the Company had 1,652 employees, of whom 1,623
are full-time and 29 are part-time as follows: Production and production support
- - 1,429, Sales and Marketing - 133, and Administration - 90.
The Company is not a party to any collective bargaining agreement and
believes that it has good working relationships with its employees.
The Company's success is highly dependent on its senior management,
including Conrad D. Clement, President and Chief Executive Officer. The loss of
Mr. Clement's services could have a material adverse affect on the Company's
business and development. There can be no assurance that an adequate replacement
could be found for Mr. Clement in the event of his departure. The Company does
not carry any key man life insurance on any of its officers or employees.
The Company has two separate agreements with Iowa community colleges
which provided the Company approximately $870,000 for job training purposes. The
amounts are to be repaid, together with interest, over a ten year period from
state withholding taxes on employees at the Company's Iowa facilities. The
Company may be required to provide funds for the repayment of these training
credits if sufficient withholding and unused training funds are not available.
Cautionary Statements
Featherlite wishes to caution readers that the following important
factors, among others, in some cases have affected, and in the future could
affect, Featherlite's actual results and could cause Featherlite's actual
consolidated results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, Featherlite:
o A moderating growth rate or decline in the overall demand or in
specific market segment demand, in the US and to some extent Canada,
for existing models of aluminum or steel specialty trailers and
motorcoaches manufactured by Featherlite and in acceptance by the
market of new trailer models and luxury coaches introduced by
Featherlite; and general or specific economic conditions, pricing,
purchasing, operational, advertising and promotional decisions by
intermediaries in the distribution channels, which could affect their
supply or end user demand for Featherlite products;
o Increased competition from competitors and potential competitors which
have greater financial and other resources than Featherlite; and
competitors that are better established in segments of Featherlite's
business;
o Fluctuation in aluminum prices; inability of a major supplier of
aluminum extrusion or sheets utilized by Featherlite to deliver raw
materials on a timely basis;
o Inability of graphics/paint subcontractor to complete custom specified
paint and graphic designs could delay delivery of specialty trailers on
a timely basis;
o Inability of motorcoach shell manufacturer to deliver shells on a
timely basis; inability to sell motorcoaches made on a spec basis at
normal profit margins;
o Inability of engine and transmission manufacturers to deliver
engines/transmissions on a timely basis.
<PAGE>
o The effects of changes within Featherlite's organization, including the
loss of the services of key management personnel, particularly Mr.
Conrad Clement, President and Chief Executive Officer.
o Continued availability of adequate financing and cash flow from
operations to support operations and expansion plans, including the
amount, type and cost of financing which Featherlite has and changes to
that financing;
o Continued pressure to increase the selling prices for Featherlite's
products to reduce the impact on margins of increasing aluminum and
other materials costs, labor rates and overhead costs related to the
expanded production facilities and organization to support expected
increases in sales; underutilization of Featherlite's manufacturing
facilities, resulting in production inefficiencies and higher costs;
o The inability to obtain adequate insurance coverage at an acceptable
price or in a sufficient amount to protect Featherlite from the adverse
effects of product and other liability claims;
o The risks related to being a licensed aircraft dealer which deals in
used business aircraft, including the purchase, sales, use and
operation of aircraft and the volatility in the sales volume and value
of aircraft;
o Payments or repurchases by Featherlite related to guarantees of debt or
the repurchase of trailers under certain circumstances in connection
with dealer and retail product financing arrangements;
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as environmental and product-related,
or criminal), settlements and investigations, claims and changes in
those items;
o A change in foreign, federal, state and local laws, rules and
regulations related to Featherlite, its products, or activities.
ITEM 2. PROPERTIES
The Company's principal sales, marketing and executive offices are
located in a 20,000 square foot building owned by the Company near Cresco, Iowa.
Adjacent to it is a Company-owned 50,000 square foot (including 20,000 added in
1997) parts distribution center and a rework, maintenance and trailer
distribution facility, from which substantially all trailer deliveries to
dealers are made.
The Company has production and warehouse facilities in Cresco, Nashua
and Shenandoah, Iowa. The Cresco facilities presently consist of five buildings
and include approximately 258,000 square feet including 140,000 square foot
expansion completed in March 1995 and a 20,000 square foot expansion in 1998.
Three buildings, totaling approximately 156,000 square feet of Company owned
space and 30,000 square feet of leased space, are used for production of
trailers and fabrication of components. A 58,000 square foot building is used,
pursuant to a lease, for custom interior finishing and a 14,000 square foot
building, which the Company owns, is used for storage of raw materials. In 1998,
the Company indefinitely deferred plans to build a warehouse facility for raw
material storage at its Cresco location.
The Shenandoah facilities include a 117,000 square foot manufacturing
facility acquired in October 1995 in connection with the DIAMOND D(R)
acquisition. All of the assets of DIAMOND D Trailer Manufacturing Inc.,
including the office and production facilities were purchased for $2.4 million
in cash. The consideration paid was based primarily on the book value of the
acquired assets on the date of purchase. The Company-owned Nashua facilities
include a 51,000 square foot manufacturing plant and an 18,000 square foot
plant/office building. In 1998, the Company sold two of the three buildings
owned in Grand Meadow, Minnesota that were used as the Company's corporate
office and rework/distribution center prior to the relocation of these
activities to Iowa in 1993. The Company currently is attempting to sell the
remaining Grand Meadow facility.
In July 1996, the Company acquired office and production facilities and
other assets of Vantare International, Inc. in Sanford, Florida. (See Note 10 to
financial statement). This facility includes approximately 55,000 square feet of
production and office space and is used for the manufacture of luxury
<PAGE>
motorcoaches. This facility is owned by Seminole Port Authority and is being
leased by the Company under the terms of an operating lease. These facilities
were expanded in 1997 to add 24,000 square feet to the production and office
space as well as 6,000 square feet for outside service bays. In 1997, vacant
land near the Vantare facilities was purchased for future expansion. In November
1998, the Company began the construction of an 18,000 square foot sales office
at a cost of approximately $2.9 million. This expansion project is scheduled to
be completed by the end of the second quarter in 1999. It also includes site
preparation work necessary to add a service center adjacent to the sales office
at an additional cost of approximately $800,000. This project may also be
completed in 1999.
In May, 1998, the Company acquired office and production facilities and
other assets of Mitchell Motorcoach Sales, Inc. in Pryor, Oklahoma. (See Note 10
to financial statements). This facility includes approximately 150,000 square
feet of production and office space and is used to manufacture luxury
motorcoaches. It is owned by Oklahoma Ordnance Works Authority and is being
leased to the Company under the terms of an operating lease which expires in
March, 2011.
In the future, the Company may determine to build or acquire existing
manufacturing facilities outside of Northeastern Iowa, which would create
additional risks to the Company's ability to manage growth.
ITEM 3. LEGAL PROCEEDINGS
The Company in the course of its business has been named as a defendant
in various legal actions. Most, but not all, of such actions are product
liability or workers' compensation claims in which the Company is covered by
insurance subject to applicable deductibles. Although the ultimate outcome of
such claims cannot be ascertained at this time, it is the opinion of management,
after consultation with counsel, that the resolution of such suits will not have
a material adverse effect on the financial position of the Company but may be
material to the Company's operating results for any particular period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the Company:
Name of Age Present Position with Company
Executive Officer
Conrad D. Clement 55 President, Chief Executive Officer and Director
Jeffery A. Mason 58 Chief Financial Officer and Director
Tracy J. Clement 32 Executive Vice President and Director
Gary H. Ihrke 52 Vice President of Operations & Secretary
Eric P. Clement 29 Vice President of Sales
Steven J. Sheldon 48 Vice President of Market Development
Larry D. Clement 53 Treasurer
The term of office of each executive officer is from one annual meeting
of directors until the next annual meeting of directors or until a successor is
elected.
The business experience of the executive officers during the past five
years is as follows:
<PAGE>
Conrad D. Clement has been the Chairman, President and Chief Executive
Officer and a director of the Company since its inception in 1988. From 1969 to
1988, Mr. Clement was the President and principal owner of several farm
equipment and agricultural businesses. Mr. Clement is also the President and
Chief Executive Officer and a shareholder of Featherlite Credit Corporation, an
affiliate of the Company ("Featherlite Credit"). Mr. Clement is the brother of
Larry D. Clement and the father of Tracy J. Clement and Eric P. Clement.
Jeffery A. Mason has been the Chief Financial Officer and Controller of
the Company since August 1989 and has been a director of the Company since June
1993. From 1969 to 1989, Mr. Mason served in various financial management
capacities with several companies, including Arthur Andersen & Co. and Carlson
Companies. Mr. Mason is a certified public accountant.
Tracy J. Clement has been Executive Vice President and a director of
the Company since 1988. Prior to 1988, Mr. Clement was a shareholder and manager
of several farm equipment and agricultural businesses with his father, Conrad D.
Clement. Mr. Clement is also an officer and shareholder of Featherlite Credit.
Gary H. Ihrke was appointed Secretary in August 1996 and Vice President
of Operations in March 1996 after service as Vice President of Manufacturing
since June 1993 and was previously a director of the Company. From January 1989
to June 1993, Mr. Ihrke was the General Manager of the Company's Cresco, Iowa
facilities. From 1969 to 1989, he served as general manager and branch manager
of an agricultural equipment manufacturing company.
Eric P. Clement has been Vice President of Sales since March 1996 after
service as Vice President of Operations since January 1991 and was previously a
director of the Company. Prior to that time, Mr. Clement attended college and
worked part time for businesses owned by his father, Conrad D. Clement. Mr.
Clement is also an officer and shareholder of Featherlite Credit.
Steven J. Sheldon has been Vice President of Market Development since
March 1996 after service as Vice President of Sales since June 1993 and was
previously a director of the Company. From 1988 to June 1993, he was the
national sales manager of the Company.
Larry D. Clement has been Treasurer of the Company since 1988 and was
previously secretary and a director of the Company. He has also been the owner
and President of several auto and truck dealerships since 1971. Mr. Clement is
the President and Secretary of Clement Auto & Truck, Inc., a FEATHERLITE(R)
dealer. Mr. Clement is the brother of Conrad D. Clement.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference
to the section labeled "Corporate Information" and "Financial Information" which
appears in the Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1998.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to "Selected Financial Information" which appears in the Company's Annual Report
to Shareholders for the fiscal year ended December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference
to the section labeled "Management's Discussion and Analysis" which appears in
the Company's Annual Report to Shareholders for the fiscal year ended December
31, 1998.
<PAGE>
ITEM 7A. QUANTITATIVE & QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Featherlite is exposed to market risks related to changes in U.S. and
International interest rates. Substantially all of the Company's debt bears
interest at a variable rate. To a limited extent, the Company manages its
interest rate risk through the use of interest rate swaps. As of December 31,
1998, the fair value of interest rate swaps was not material. A 10% increase in
interest rates would reduce the Company's future annual earnings by
approximately $385,000 at current debt levels.
The Company uses substantial quantities of aluminum in its
manufacturing of trailers. The Company generally seeks to limit its exposure to
the risk of fluctuations in the price of aluminum by entering into fixed-price
contracts with suppliers for quantities sufficient to satisfy its requirements
for up to one year in advance. The Company does not engage in hedging
transactions or other use of derivatives in connection with its operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference
to the consolidated financial statements, notes thereto and Independent
Auditors' Report thereon which appear in the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Other than "Executive Officers of the Registrant" which is set forth at
the end of Part I of this Form 10-K, the information required by Item 10 is
incorporated herein by reference to the section labeled "Election of Directors"
which appears in the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the section labeled "Executive Compensation" which appears in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference
to the sections labeled "Principal Shareholders" and "Management Shareholdings"
which appear in the Company's definitive Proxy Statement for its 1999 Annual
Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section labeled "Certain Transactions" which appears in the Company's
definitive Proxy Statement for its 1999 Annual Meeting of Shareholders.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements:
Page
Report of Independent Auditor..........................*
Balance Sheets at December 31, 1998 and 1997...........*
Statements of Operations for each of the years
ended December 31, 1998, 1997 and 1996...............*
Statements of Cash Flows for each of the years
ended December 31, 1998, 1997 and 1996...............*
Statements of Shareholders' Investment for each
of the years ended December 31, 1998, 1997
and 1996.............................................*
Notes to Consolidated Financial Statements.............*
(2) Financial Statement Schedules: None
(3) Exhibits. See Exhibit Index on page following signatures.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the last quarter of the period covered by this report.
- --------------
* Incorporated by reference to the Company's Annual Report to
Shareholders for the fiscal year ended December 31, 1998, a copy of
which is included with this Form 10-K as Exhibit 13.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FEATHERLITE, INC.
By:/s/ Conrad D. Clement
Conrad D. Clement
Date: March 20, 1999 President and Chief Executive Officer
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
POWER OF ATTORNEY
Each person whose signature appears below constitutes CONRAD D. CLEMENT
and TRACY J. CLEMENT his true and lawful attorneys-in-fact and agents, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this Annual Report on Form 10-K and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all said attorneys-in-fact and agents,
each acting alone, or his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
Signature Title Date
/s/ Conrad D. Clement President, Chief March 20, 1999
Conrad D. Clement Executive Officer and
Director (Principal
Executive Officer)
/s/ Jeffery A. Mason Chief Financial Officer March 20, 1999
Jeffery A. Mason and Director (Principal
Financial and Accounting
Officer)
/s/ Tracy J. Clement Executive Vice President March 20, 1999
Tracy J. Clement and Director
/s/ Donald R. Brattain Director March 20, 1999
Donald R. Brattain
/s/ Thomas J. Winkel Director
Thomas J. Winkel March 20, 1999
/s/ Kenneth D. Larson Director March 20, 1999
Kenneth D. Larson
/s/ John H. Thomson Director March 20, 1999
John H. Thomson
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
EXHIBIT INDEX
TO
FORM 10-K FOR FISCAL YEAR ENDED
DECEMBER 31, 1998
-------------------------
FEATHERLITE, INC.
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization dated May 8, 1998 with Mitchell
Motorcoach Sales, Inc.-- incorporated by reference to Exhibit 10.10 to
Company's 10-Q for the quarter ended June 30, 1998*
2.2 Amendment to Agreement between the Company and Mitchell Motorcoach
Sales, Inc. dated December 31, 1998
3.1 The Company's Articles of Incorporation, as amended-- incorporated by
reference to Exhibit 3.1 to Company's 10-Q for the quarter ended March
31, 1998*
3.2 The Company's Bylaws, as amended-- incorporated by reference to Exhibit
3.2 to Company's S-1 Registration Statement, Reg. No. 33-82564*
4.1 Specimen Form of the Company's Common Stock Certificate-- incorporated
by reference to Exhibit 4.1 to Company's S-1 Registration Statement,
Reg. No. 33-82564*
10.1 Agreements with Samuel-Whittar, Inc. dated February 3, 1998, May 13,
1998, June 29, 1998 and June 30, 1998-- incorporated by reference to
Exhibit 10.4 to Company's 10-Q for the quarter ended June 30, 1998*
10.2 Agreement with Easco Aluminum dated May 1, 1998-- incorporated by
reference to Exhibit 10.5 to Company's 10-Q for the quarter ended June
30, 1998*
10.3 Agreement with Aluminum Shapes dated May 1, 1998-- incorporated by
reference to Exhibit 10.6 to Company's 10-Q for the quarter ended June
30, 1998*
10.4 Agreement with Alumax Transportation Products dated May 14, 1998 --
incorporated by reference to Exhibit 10.7 to Company's 10-Q for the
quarter ended June 30, 1998*
10.5 Agreements with Aluminum Line Products Company dated June 10, 1998 and
June 30, 1998-- incorporated by reference to Exhibit 10.8 to Company's
10-Q for the quarter ended June 30, 1998*
10.6 Letter to Tifton Aluminum dated May 1, 1998-- incorporated by reference
to Exhibit 10.9 to Company's 10-Q for the quarter ended June 30, 1998*
10.7 Revolving Loan and Security Agreement with Firstar Financial Services,
Division of Firstar Bank, Milwaukee, Wisconsin-- incorporated by
reference to Exhibit 10.1 to Company's 10-Q for the quarter ended
September 30, 1998*
10.8 Amendment to Revolving Loan and Security Agreement between the Company
and Firstar Financial Services dated February 8, 1999
10.9 **1994 Stock Option Plan, including Form of Incentive Stock Option
Agreement -- incorporated by reference to Exhibit 10.2 to Company's S-1
Registration Statement, Reg. No. 82564*
<PAGE>
10.10 Industrial New Jobs Training Agreement between the Company and
Northeast Iowa Community College-- incorporated by reference to Exhibit
10.10 to Company's S-1 Registration Statement, Reg. No. 33-82564*
10.11 Industrial New Jobs Training Agreement between the Company and Hawkeye
Institute of Technology -- incorporated by reference to Exhibit 10.11
to Company's S-1 Registration Statement, Reg. No. 33-82564*
10.12 Inventory Repurchase Agreement, dated September 12, 1990, between the
Company and NationsCredit Commercial Corporation (formerly Chrysler
First Commercial Corporation Limited) -- incorporated by reference to
Exhibit 10.12 to Company's S-1 Registration Statement, Reg. No.
33-82564*
10.13 Floorplan Agreement, dated March 27, 1992, between the Company and ITT
Commercial Finance Corp.-- incorporated by reference to Exhibit 10.13
to Company's S-1 Registration Statement, Reg. No. 33-82564*
10.14 Agreement, effective January 1, 1995, between the Company and Polaris
Industries, L.P.-- incorporated by reference to Exhibit 10.15 to
Company's Form 10-K for the fiscal year ended December 31, 1998*
10.15 Inventory Repurchase Agreement, dated February 27, 1995, between the
Company and TransAmerica Commercial Finance Corporation -- incorporated
by reference to Exhibit 10.23 to Company's Form 10-K for the fiscal
year ended December 31, 1995*
10.16 Agreement for wholesale financing dated October 3, 1996 between the
Company and Deutsche Financial Services-- incorporated by reference to
Exhibit 10.22 to Company's 10-K for the fiscal year ended December 31,
1996*
10.17 **Amendment to 1994 Stock Option Plan dated May 14, 1996 --
incorporated by reference to Exhibit 10.23 to Company's 10-K for the
fiscal year ended December 31, 1996*
10.18 Construction Loan Agreement, dated November 30, 1998 between the
Company and First Union Bank
10.19 Real Estate Promissory Note, dated November 30, 1998 in the amount of
$4,000,000 to First Union Bank
10.20 Swap Transaction Confirmation dated November 30, 1998 between the
Company and First Union Bank
13 Portions of annual report to shareholders for the fiscal year ended
December 31, 1998 incorporated by reference in this Form 10-K
21 Subsidiaries of the Company:
State of
Name Incorporation
---- -------------
Featherlite Aviation Company Minnesota
23 Consent of Independent Auditors
24 Powers of Attorney of directors-- included under the "Signatures"
section of this Form 10-K
27 Financial Data Schedule (filed in electronic format only)
- ------------
* Incorporated by reference to a previously filed document or report
(File # 0-24804, unless otherwise indicated).
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form 10-K
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
Parties: Featherlite, Inc. (formerly Featherlite Mfg., Inc., "Featherlite")
Mitchell Motorcoach Sales, Inc. ("Mitchell Motorcoach")
Harvey G. Mitchell and Patricia A. Mitchell ("Mitchells")
Robert M. Meixner ("Meixner")
Mark Molder ("Molder")
(Mitchells, Meixner and Molder are collectively referred to as
the "Shareholders")
Date: December 31, 1998
Recitals:
A. Featherlite, Mitchell Motorcoach and the Shareholders are parties to
an Agreement and Plan of Reorganization dated May 8, 1998 (the "Agreement"). All
capitalized terms in this Amendment shall have the meaning given to them in the
Agreement.
B. The Agreement provided in Section 2.7 for an adjustment to the
number of Featherlite Shares issued initially to Mitchell Motorcoach and the
maximum number of Earnout Shares available for later issuance based on the
Closing Balance Sheet.
C. The Closing Balance Sheet was delivered and an adjustment made in
accordance with the terms of the Agreement but subsequently it has been
determined that a further adjustment is required. The parties hereto intend for
this Amendment to authorize and implement such further adjustment.
Agreements:
The parties hereto hereby agree as follows:
1. A further adjustment to number of Featherlite Shares in the manner
provided by Section .7 of the Agreement is required.
2. With regard to 1998 Vogue coach #VM258 the adjustment for proper
valuation is a reduction of $69,645.
3. With regard to 1997 Vogue coach #VM203 the adjustment for proper
valuation is a reduction of $97,914.
4. The total adjustment of $167,559 shall be made in the manner
provided in Section 2.7 of the Agreement as if the adjustment had been made in
the Closing Balance Sheet. Therefore, Mitchell Motorcoach authorizes the
delivery of 18, 287 Featherlite Shares to Featherlite from the shares pledged
pursuant to Section 5.19 of the Agreement, the cancellation of such shares and
an increase in the maximum number of Earnout Shares in the same number.
<PAGE>
5. All other provisions of the Agreement shall remain in full force and
effect.
Featherlite, Inc.
By:
---------------------------------
Mitchell Motorcoach Sales, Inc.
By:
---------------------------------
- ----------------------------- ------------------------------------
Robert M. Meixner Harvey G. Mitchell
- ----------------------------- ------------------------------------
Mark Molder Patricia A. Mitchell
February 8, 1999
Mr. Jeffery Mason, CFO
Featherlite, Inc.
Hwy. 63 & 9
Cresco, IA 52136
Re: Amendment of Revolving Loan and Security Agreement
Dear Mr. Mason:
Please refer to the Revolving Loan and Security Agreement by and between Firstar
Financial Services, a division of Firstar Bank Milwaukee, N.A. ("FFS") and
Featherlite, Inc., dated September 24, 1998 ("Agreement"). At your request, FFS
has agreed to amend the Agreement as follows:
1. The following shall be added to Section 2. DEFINITIONS:
"(e) "Capital Expenditures" means the aggregate amount of all
purchases or acquisition of fixed assets (including real
estate, motor vehicles, equipment, fixtures, leases and any
other items) that would be capitalized on Debtor's books under
Generally Accepted Accounting Principles (defined below). The
term "Capital Expenditures" will not include expenditures or
charges for the usual and customary maintenance, repair and
retooling of any fixed assets or the acquisition of new
tooling in the ordinary course of Debtor's business.
(f) "Generally Accepted Accounting Principles" means the latest
promulgated generally accepted accounting principles by the
American Institute of Certified Public Accountants ( "AICPA"),
as supplemented by any pronouncements by the AICPA or the
Financial Accounting Standards Board ("FASB") consistently
applied by Debtor to all relevant financial periods.
(g) Debt" means the total of all liabilities of Debtor, on a
consolidated basis, which would properly appear on Debtor's
balance sheet prepared in accordance with Generally Accepted
Accounting Principles (as defined above).
(g) "Debt To Tangible Net Worth Ratio" means the relationship,
expressed as a numerical ratio, between: (i) the total of all
liabilities of Debtor, on a consolidated basis, which would
appear on Debtor's balance sheet in accordance with Generally
Accepted Accounting Principles (as defined above); and (ii)
the Debtor's Tangible Net Worth (as defined below).
<PAGE>
(g) "Tangible Net Worth" means the total of all assets properly
appearing on Debtor's balance sheet on a consolidated basis in
accordance with Generally Accepted Accounting Principles (as
defined above), less the sum of the following: (i) the book
amount of all such assets which would be treated as
intangibles under Generally Accepted Accounting Principles
(including, without limitation, all such items as goodwill,
trademarks, trademark rights, trade names, trade name rights,
brands, copyrights, patents, patent rights, licenses, deferred
charges and unamortized debt discount and expense, capitalized
tooling, dies, patterns, jigs and the like, and leasehold
improvements); (ii) any write-up in the book value of any such
assets resulting from a revaluation thereof subsequent to the
date of this Agreement; (iii) all reserves, including reserves
for depreciation, obsolescence, depletion, insurance and
inventory valuation, but excluding contingency reserves not
allocated for any particular purpose and not deducted from
assets; (iv) the amount, if any, at which the shares of stock
of Debtor appear on the asset side of such balance sheet; (v)
all liabilities of Debtor shown on such balance sheet
(excluding deferred tax liabilities and all indebtedness
subordinated to Lender on terms satisfactory to Lender); (vi)
all investments in foreign affiliates and nonconsolidated
domestic affiliates; (vii) advances or loans to employees,
officers, directors; (viii) interest or finance charge
receivables; (ix) deposits; (x) miscellaneous non-trade
receivables; (xi) prepaid or deferred assets (other than for
income taxes and insurance); (xii) net book value of dies,
molds, tooling, jigs, patterns and the like; and (xiii) net
book value of any leasehold improvements on property owned by
party(ies) other than Debtor or Debtor's principals.
(g) "EBITDA" means for any given fiscal period (i) all income
derived from Debtor's operations on a consolidated basis
(excluding any extraordinary or nonrecurring gain); and (ii)
all interest, taxes, depreciation and amortization properly
recordable by Debtor.
(h) "Fixed Charge Coverage Ratio" means the numerical ratio
between EBITDA and the sum of the following items for any
given fiscal period: accrued interest on all nonsubordinated
indebtedness (or portion thereof), principal payments on all
indebtedness (excluding FFS' revolving loan, the wholesale
floorplan financing from Deutsche Financial Services and
payoffs of debt on aircraft financing from the proceeds of
sale of such aircraft), accrued income taxes and any Capital
Expenditures (or portion thereof) internally financed by
Debtor, but excluding that portion of Capital Expenditures
made by Debtor which qualify for term loan financing under
existing term loan facilities which have not been drawn upon
for such purposes as of the date of the Fixed Charge Coverage
Ratio calculation."
2. The first sentence of subsection (a) Term, Termination, Prepayment
of Section 9. TERMINATION shall be amended to read:
<PAGE>
"This Agreement may be terminated at any time upon Debtor's
default by written notice from Lender to Debtor."
3. The following financial covenants shall be added to Section 12.
ADDITIONAL TERMS as follows:
"(c) Capital Expenditures. Except for fixed asset acquisitions
evidenced by a binding purchase order or agreement made prior
to the date of this Agreement, Debtor shall not acquire or
expend sums for the acquisition of fixed assets such as real
estate, equipment, motor vehicles, aircraft (excluding
aircraft purchased for sale in the ordinary course of
business), real estate or leasehold improvements, fixtures or
the like (including, without limitation, the principal amount
of any real estate, motor vehicles, equipment, fixtures and/or
real estate or leasehold improvements acquired pursuant to a
lease which would be capitalized on Debtor's books under
Generally Accepted Accounting Principles, as defined in
Section 2. DEFINITIONS) for Debtor's fiscal year ending
December 31, 1998 in excess of $4,000,000.00; for Debtor's
fiscal year ending December 31, 1999 in excess of
$6,600,000.00; and for each of Debtor's fiscal years ending
December 31, 2000 and thereafter in excess of $4,000,000.00
per year. The maximum limit set forth above shall not include
expenditures or charges for the usual and customary
maintenance, repair or retooling of any fixed assets; or the
acquisition of new tooling in the ordinary course of Debtor's
business.
(d) Debt to Tangible Net Worth. Debtor shall maintain at all times
for the periods noted a ratio of Debt to Tangible Net Worth
(as defined in Section 2. DEFINITIONS) not greater than 4.25
to 1 as of December 31, 1998; 4.0 to 1 for the six month
period ending June 30, 1999; 3.75 to 1 for the six month
period ending December 31, 1999; 3.65 to 1 for the six month
period ending June 30, 2000; and not greater than 3.5 to 1 for
the six month periods ending December 31, 2000 and thereafter,
to be tested by Lender semi-annually, based on Debtor's
internally prepared financial statements and/or Lender's or a
certified public accounting firm's audit of Debtor's financial
records.
(e) Minimum EBITDA. Debtor shall achieve EBITDA (as defined in
Section 2. DEFINITIONS) of at least $6,500,000.00 for Debtor's
fiscal year ending December 31, 1998; at least $8,000,000.00
for Debtor's fiscal year ending December 31, 1999, and at
least $11,000,000.00 for each of Debtor's fiscal years ending
December 31, 2000 and thereafter, to be tested by Lender based
upon Debtor's internally prepared financial statements and/or
Lender's or a certified public accounting firm's audit of
Debtor's financial records.
(f) Minimum Fixed Charge Coverage Ratio. Debtor shall maintain at
all times a Fixed Charge Coverage Ratio (as defined in Section
<PAGE>
2. DEFINITIONS) equal to or exceeding 1.25 to 1 for all fiscal
periods to be tested quarterly by Lender based upon Debtor's
internally prepared financial statements and/or Lender's or a
certified public accounting firm's audit of Debtor's financial
records.
In all other respects, the Agreement shall remain unchanged and in full force
and effect.
The foregoing amendments are contingent upon the approval of the participant in
this loan: LaSalle National Bank.
If the above agrees with your understanding and approval, please indicate same
by signing the original of this letter and returning it to the undersigned.
(NOTE: If you return executed documents via facsimile, you must also return the
original executed documents. You agree FFS may rely on facsimile signatures for
all purposes and without any liability to you.) If the preconditions (if any) to
this amendment are not satisfied or if this amendment letter is not executed and
returned to FFS on or before February 12, 1999, then the proposed amendments
herein may be withdrawn by FFS by written notice to you. The amendments set
forth herein and any accompanying documents will be deemed effective and
accepted in Milwaukee, Wisconsin, upon our receipt of the executed documents.
Sincerely,
James G. Tepp
Vice President
cag
Enclosure
cc: Gilbert L. Southwell, III
Agreed to this ___ day of _________________ , 1998.
FEATHERLITE, INC.
By: __________________________________
Name and Title: ________________________
CONSTRUCTION LOAN AGREEMENT
THIS AGREEMENT, made and entered into November 30, 1998, by and
between FEATHERLITE, INC., formerly known as FEATHERLITE MFG., INC., whose
address, for purposes of this Agreement, is 1550 Dolgner Place, Sanford, Florida
32771 (hereinafter called "Owner"), and FIRST UNION NATIONAL BANK, whose
address, for purposes of this Agreement, is Post Office Box 1000, Orlando,
Florida 32802 (hereinafter called "Lender").
W I T N E S S E T H:
Owner has applied to Lender for a loan to aid in the construction of a
sales and service facility on Owner's real property. Lender has agreed to make a
construction loan to Owner, and Owner has agreed to accept such loan on the
terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the execution and simultaneous
delivery of the Loan Documents and of the mutual and separate agreements,
conditions, covenants, representations and warranties of the parties hereto, it
is agreed, covenanted, represented and warranted by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
1.01 As used in this Construction Loan Agreement, the following terms
shall have the meanings indicated opposite each of them:
Property: See attached Exhibit "A".
Mortgage: The mortgage deed of even date herewith encumbering
the Property, given by Owner to Lender to secure the
Note.
Note: The promissory note of even date herewith in
the original principal amount of FOUR
MILLION AND NO/100 DOLLARS ($4,000,000.00)
given by the Owner to the Lender to
represent the Construction Loan.
Construction Loan: The loan contemplated by this Construction Loan Agreement.
Loan Documents: The Note, the Mortgage, the Construction Loan Agreement,
Financing Statements, and all other documents executed
by Owner in connection with the Construction Loan.
Plans: The final plans and specifications for construction
of the Improvements prepared by Owner's Architect
and heretofore approved by Lender and all amendments and
modifications thereto made with the approval of the
Lender.
<PAGE>
Improvements: The Improvements described in the Plans and in the
Application for the Construction Loan. Without
limiting the foregoing, the term "Improvements" shall
include all landscaping, walls, drives, approaches,
sidewalks, curbs, paving, and all chattels, furniture,
furnishings, fixtures and equipment described in the
Plans or described in the application for the
Construction Loan, and all building materials,
machinery, appliances and equipment to be incorporated in
or affixed to the Improvements described in the Plans.
Owner's Contractor: Spolski General Contractor, Inc.
Owner's Architect: ________________________________________________________
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE OWNER
2.01 The Owner is indefeasibly seized of the Property in fee simple and
has full power and lawful right to convey and mortgage the same. The Property is
free and clear of all encumbrances except current taxes which are not yet due
and payable.
2.02 No materials of any kind have been placed on the Property, and no
labor has been performed thereon incident to the Improvements within the next
preceding ninety (90) days; there are no unpaid bills for labor, materials,
supplies or services furnished upon the Property; and no Notice of Commencement
or claim of lien affecting the Property or the Improvements has been filed in
the Public Records of the County in which the Property is located, and no such
Notice of Commencement or claim of lien will be so filed prior to the recording
of the Mortgage.
2.03 The Plans shall not be deemed to be complete unless they shall
include detailed provisions for convenient ways of access by either foot or
vehicle to all proposed buildings included in the Improvements and also all
necessary paving of private ways, curbs, sidewalks, gutters, landscaping,
easements and utility connections, and all equipment necessary for the operation
of the Improvements as a completed project. The master set of Plans shall be
deposited with the Lender and, when so deposited, shall govern all matters that
may arise with respect thereto. Before being so deposited, the Plans will be
subject to approval by the Lender, and, to the extent required by applicable law
or any effective restrictive covenant, by all governmental authorities and the
beneficiary of any such covenant, respectively. Owner shall secure all such
approvals.
2.04 All utilities services necessary and adequate for the construction
of the Improvements and the operation thereof for their intended purpose are
<PAGE>
available for the use of Owner at the boundaries of the Property, including
water supply, storm and sanitary sewer facilities, electric, and telephone
facilities, and evidence thereof satisfactory to Lender shall be submitted to
Lender before closing of the Construction Loan. Applicable zoning regulations
will permit the construction and use of the Improvements for a sales and service
facility, and evidence thereof satisfactory to Lender shall be submitted to
Lender before closing of the Construction Loan.
2.05 Representations made by the Owner in financial statements
furnished to the Lender in connection with application for the Construction
Loan, and all representations made in such application, are true as of the date
hereof.
2.06 All necessary licenses and permits have been obtained to permit
the completion of the Improvements.
2.07 All labor and materials contracted for or in connection with the
construction of the Improvements shall be used and employed solely on the
Property and in said construction, and only in accordance with the Plans.
2.08 The monies disbursed under this Construction Loan Agreement shall
constitute a trust fund and shall be used solely for the payment of Owner's
costs and for no other purpose unless another use is specifically provided for
in this Construction Loan Agreement, or consented to in writing by Lender.
2.09 Each of the representations and warranties set forth in this
Article will be true on the date of each advance hereunder and the acceptance of
any advance hereunder by Owner shall be deemed to be a reaffirmation of each of
said representations and warranties.
ARTICLE 3
OWNER'S COVENANTS
The Owner covenants and agrees with Lender as follows:
3.01 The Owner will cause to be furnished to the Lender at Owner's
expense, forthwith and prior to the disbursement of any funds hereunder, a
policy of title insurance covering the Property in the aggregate sum of the
Mortgage, in a company acceptable to Lender. Said policy shall show the party
named as Owner to be vested with a valid insurable fee simple title, free and
clear of all exceptions and encumbrances whatsoever except the Mortgage, current
taxes not yet due and payable, and covenants and restrictions without right of
reverter or forfeiture of title in case of violation thereof, and which do not
prohibit or limit construction or operation of the Improvements, and shall
insure the Lender and its nominee or assigns that the Mortgage is a valid first
lien on the Property subject only to the exceptions expressly permitted in this
Agreement. Such title insurance policy shall be effective from the time of the
recording of the Mortgage.
<PAGE>
3.02 The Owner shall, forthwith and prior to the disbursement of any
funds hereunder, furnish to Lender at Owner's expense a current print of survey
showing the Property to be free from encroachments and encumbrances, which
survey shall meet all the requirements of the title insurer to enable the title
insurer to eliminate any exception for survey matters from the title insurance
policy. At request of Lender, Owner shall furnish a supplemental survey or
surveys showing all foundations of the Improvements to be in place, properly
located on the Property and not in violation of any covenant or restriction or
zoning ordinance affecting the Property. Upon completion of the Improvements,
Owner shall furnish to Lender at least two prints of survey showing the
Improvements to be complete and properly located on the Property. Such surveys
shall be made by a civil engineer or surveyor acceptable to the Lender and shall
be paid for by Owner. All required surveys shall be certified to the Lender and
the title insurance company insuring the lien of the Mortgage.
3.03 Owner shall furnish and pay the premiums for fire and extended
coverage insurance (including Builder's Risk Insurance) and insurance against
such other hazards as may be required by Lender, in a company or companies
acceptable to the Lender, for the full insurable value of the Improvements, and
covering the same, said policies to be in amount and form acceptable to Lender.
Loss under such insurance policies shall be payable first to the Lender to the
extent of its interest or lien, and shall not be cancellable without at least
ten (10) days' written notice by insurer to Lender. Owner shall also furnish, at
Owner's expense, general comprehensive liability insurance required by Lender.
3.04 Owner shall construct the Improvements on the Property in a true,
thorough, workmanlike and substantial manner and in accordance with the Plans.
Owner shall provide, at Owner's cost, all manner of materials, labor,
scaffolding, implements and cartage of every description for the due performance
of the several works and complete construction of the Improvements. Owner shall
not make any changes in the Plans or deviate therefrom except with the written
consent of the Lender.
3.05 Owner shall take all necessary steps to assure that construction
and installation of the Improvements shall commence not later than thirty (30)
days from the date of this Construction Loan Agreement, shall proceed
continuously and diligently, and shall be completed within twelve (12) months
from the date hereof.
3.06 Owner shall furnish, before each advance herein agreed to be made
and on completion of construction, all receipted bills, certificates,
affidavits, releases of lien and other documents which may be required by the
lien laws of the State of Florida, or which may be required by the Lender or the
title insurance company providing the title insurance coverage described in
Section 3.01, as evidence of full payment for all labor and materials incident
to the construction of the Improvements for which prior advances of Construction
Loan proceeds have been requested and made, and the Owner will, at the same
time, furnish partial releases from all persons receiving payment from
Construction Loan proceeds for the amount of payments received. Prior to the
final payment of the remaining Construction Loan proceeds to or for the account
of the Owner, the Owner shall furnish satisfactory proof of payment of all
accounts and claims for labor, material and services furnished in connection
with the Improvements.
<PAGE>
3.07 If the Owner at any time prior to the completion of the
Improvements abandons the same or ceases work thereon for a period of more than
twenty (20) days or fails to complete the Improvements substantially in
accordance with the Plans, except as to changes approved as herein provided by
the Lender or makes material changes in the Plans without first securing written
approval of the Lender or otherwise fails to comply with the terms hereof, any
such failure shall be a default hereunder, at the option of the Lender, and the
Lender may terminate this Agreement, or the Lender, at its option, at any time
thereafter may enter into possession of the premises and perform any and all
work and labor necessary to complete the Improvements substantially according to
the Plans and employ watchmen to protect the Property from injury. All sums so
expended by the Lender shall be deemed paid to Owner and secured by the
Mortgage. For this purpose, the Owner hereby constitutes and appoints the Lender
as true and lawful attorney-in-fact with full power of substitution in the
premises, to complete the Improvements in the name of the Owner, and hereby
empowers said attorney or attorneys as follows: to use any funds of the Owner,
including any balance which may be held in escrow and any funds which may remain
unadvanced under the Mortgage, for the purpose of completing the Improvements in
the manner called for by the Plans; to make such additions and changes or
corrections in the Plans as shall be necessary or desirable to complete the
Improvements in substantially the manner contemplated by the Plans; to employ
such contractors, subcontractors and agents, architects and inspectors as shall
be required for said purposes; to pay, settle or compromise all existing bills
and claims which may be liens against the Property, or as may be necessary or
desirable for the completion of the job, or for clearance of title; to execute
all applications and certificates in the name of the Owner which may be required
by any of the contract documents; and to do any and every act which the Owner
might do in its own behalf. It is further understood and agreed that this power
of attorney shall be deemed to be a power coupled with an interest and cannot be
revoked. The above-mentioned attorney shall also have the power to prosecute and
defend all actions or proceedings in connection with the construction of the
Improvements on the Property and to take such action and require such
performance as said attorney deems necessary. The Owner hereby assigns and
quit-claims to the Lender all sums advanced under the Mortgage and on sums due
in escrow, conditioned upon the use of said sums in trust for the completion of
the Improvements, such assignment to become effective only in case of the
Owner's default.
3.08 Owner will not convey or encumber the Property in any way without
the consent of the Lender (except for the Mortgage and all advances made and to
be made hereunder), nor shall Owner assign any rights under this Construction
Loan Agreement or any part of any advance to be made hereunder.
3.09 Owner will permit Lender and its representatives to enter upon the
Property, inspect the Improvements and all materials to be used in the
construction thereof, and to examine all detailed plans and shop drawings which
are or may be kept at the construction site, and all books and records of Owner
relating to the Property, and will cooperate with the Lender and Lender's
representatives to enable it to perform its functions hereunder. It is expressly
agreed that any inspections made by Lender or its representatives shall be made
solely for the protection and benefit of the Lender, and the Owner shall not be
entitled to claim any loss or damage either against the Lender or its
representatives for failure to properly discharge their duties to Lender.
<PAGE>
3.10 Owner agrees that it will correct any work performed and replace
any material that does not substantially comply with the Plans. In the event of
any dispute between Owner and Lender with respect to the interpretation and
meaning of the Plans, the same shall be determined by Lender and the decision of
Lender shall be final and conclusive on the parties.
3.11 Construction Loan interest, excluding prepaid interest, shall be
charged on the amounts disbursed from the date of disbursement and shall be
payable monthly on the 15th day of each month without demand, commencing on the
15th day of the month following the first disbursement of funds hereunder. All
such interest may be disbursed by Lender to itself from the proceeds of the
Construction Loan, or alternatively, Lender may charge any bank account of Owner
maintained by Owner with the Lender.
3.12 Owner covenants, warrants and agrees that it will provide from its
own funds without secondary financing involving any mortgage or other lien
against the Property (except the Mortgage), such amounts as may be necessary to
pay for all costs of the Improvements which are in excess of the disbursements
required to be made by Lender hereunder, and Lender shall not be required to
make any disbursement hereunder if the undisbursed proceeds of the Construction
Loan shall be less than the amount necessary to pay for the completion of the
Improvements. If, for any reason, the undisbursed Construction Loan proceeds
shall be at any time insufficient for such purpose, Owner will, within fifteen
(15) days after written request by Lender, deposit the deficiency with the
Lender, and such deposit shall be first disbursed in the manner provided in
Article 4 hereof before any further disbursements of the proceeds of the
Construction Loan shall be made. The judgment and determination of Lender as to
the amount necessary to pay for the completion of the Improvements shall be
final and conclusive.
3.13 To the end that the agreements of the Owner set forth herein and
in the Loan Documents shall be effectively and fully performed and the intent
and purpose of this Construction Loan Agreement fulfilled, Owner agrees to
execute all such other and further instruments as may reasonably be required by
Lender from time to time in order to carry out the provisions of protecting,
maintaining or enforcing Lender's security for the Construction Loan.
3.14 All right, title and interest of the Owner in any facilities or
property intended to be used in connection with the Improvements shall be
assigned by Owner to the Lender as additional collateral to secure the Note
until such time as the Note shall have been paid in full.
3.15 Owner agrees to pay all costs, including reasonable attorneys'
fees, incurred by the Lender in connection with preparation of the Loan
Documents and in the enforcement thereof and in connection with the review of
any other documents submitted to Lender for its approval in accordance with the
provisions hereof, and the Lender is authorized to disburse such costs and
expenses from the Construction Loan proceeds.
<PAGE>
ARTICLE 4
ADVANCES DURING CONSTRUCTION
4.01 Lender will disburse and Owner will accept the proceeds of the
Construction Loan in the following manner:
A. Initial Disbursement: Simultaneously with the execution and
delivery of this Construction Loan Agreement, the Note, Mortgage and
other Loan Documents, there shall be disbursed to or on behalf of Owner
the sum of $ 0.00 of the loan proceeds as an initial disbursement
hereunder for the purpose of paying the costs incident to the closing
of the loan transaction contemplated hereunder, and paying or
reimbursing Owner for construction and development costs related to the
Property and Improvements incurred prior to the date of such initial
disbursement.
B. Construction Disbursements: The balance of the Construction
Loan proceeds remaining to be disbursed subsequent to the initial
disbursement; i.e., $4,000,000 hereinafter called "Construction
Disbursements", shall be disbursed during the progress of the
construction of the Improvements only on the terms and conditions
hereinafter provided. The Construction Disbursements shall be made on
the basis of written requests therefor submitted by Owner to Lender in
the form and with such supporting documentation as are herein
specified, to wit:
(1) Each request for a Construction Disbursement
shall be in the form of a request from Owner for the
disbursement by Lender of a stated amount of the Construction
Loan proceeds which will be sufficient to reimburse Owner for
costs actually expended by Owner prior to the date of such
request for the Construction Disbursement and to pay for
Owner's costs which are due and payable on the date of such
request.
(2) Each request for Construction Disbursement shall
be, at the option of Lender, accompanied by receipted invoices
(or other evidence of payment satisfactory to Lender) for all
of Owner's costs which have been paid prior to the request for
disbursement, and shall be accompanied by invoices not
receipted covering Owner's costs which are then due and
payable but which have not been paid.
(3) Each request for Construction Disbursement shall
also be accompanied by a certification on the part of Owner,
Owner's Contractor and Lender's inspector, stating that all
labor and materials for which disbursement is being requested
have, in fact, been used in the construction of the
Improvements and the work for which disbursement is being
requested has, in fact, been accomplished in accordance with
the plans and in a good and workmanlike manner; that all
certifications, inspections and approvals which may be
necessary or customary at such stage of construction have been
received; and that Owner is entitled to the Construction
Disbursement requested.
<PAGE>
(4) Each request for a Construction Disbursement
shall set forth in percentage terms that portion of the total
construction work to be completed pursuant to this
Construction Loan Agreement and in accordance with the Plans
which have in fact been completed as of the date of such
request, and such percentage of completion shall be certified
by Owner, Owner's Contractor and Lender's inspector.
(5) Each request for a Construction Disbursement
shall also include a certification by Owner that all bills for
labor, materials and services then incurred and payable in
connection with the construction of the Improvements have been
paid or will be paid from the Construction Disbursement being
requested and that all prior Construction Disbursements have
been expended by Owner only in connection with the
construction of the Improvements on the Property contemplated
herein.
(6) Each request for a Construction Disbursement
shall likewise be accompanied and supported by such other
documents, certifications or assurances as Lender may from
time to time, in its sole discretion, deem necessary. During
the course of construction, the Owner, Owner's Contractor and
the Lender's inspector, shall certify monthly that percentage
of the total work to be completed in accordance with the Plans
which has actually been completed at the time of such
certification. Provided that the Lender has received a written
request for disbursement in the form and with such supporting
documentation as required above, the Lender shall disburse to
the Owner (or in the discretion of the Lender, jointly to the
Owner and Owner's contractor) such portion of the Construction
Disbursement as is equal to that percentage of the work
completed, less ten percent (10%) of said amount and less all
amounts of Construction Disbursements previously disbursed.
It is expressly provided, however, that notwithstanding the amount of a
Construction Disbursement requested or the amount of costs paid by Owner or the
certification of the percentage of completed construction, at no time shall the
Lender be obligated to disburse funds in excess of the amounts recommended by
its inspector. The determination by the Lender of the amount of Owner's costs
and the percentage of completion which properly form the predicate for any
Construction Disbursement shall be final and conclusive.
C. Final Disbursement: Lender will disburse to the Owner all
undisbursed Construction Loan proceeds upon the following conditions:
(1) the completion of all of the Improvements contemplated by this
Agreement to the satisfaction of the Lender; (2) certification by
Owner's architect and Lender's inspector that the Improvements have
been completed in accordance with the Plans; (3) the issuance of a
permanent Certificate of Occupancy or such other permits and
certificates as shall be required for the contemplated operation of the
<PAGE>
mortgaged premises as a sales and service facility by all governmental
authorities having jurisdiction over the Property and the Improvements;
(4) the Owner's delivery to Lender of proof satisfactory to Lender that
all bills for labor and materials for the construction of the
Improvements have been paid in full together with such properly
executed affidavits and lien waivers in connection with said
construction as the Lender or its attorneys may require; and (5) when
Lender is otherwise satisfied that Owner has fulfilled any previously
unfulfilled terms, conditions or requirements of the Loan Documents.
4.02 To the extent feasible, Owner shall request Construction Loan
advances only once each month. Each such request shall be made in writing and
submitted directly to Lender's Construction Loan Administration Department, 214
North Hogan Street, Jacksonville, Florida 32202 (1-800-774-3862). Lender shall
not be required to make any such advance until at least five (5) business days
after the receipt of request therefor. Funds shall be disbursed in accordance
with this Construction Loan Agreement directly to the Owner or, at the option of
the Lender, such funds may be disbursed by checks payable to the Owner and to
any other person, firm or corporation to whom Owner is indebted for work done on
the Property, or, at its option, Lender may make such disbursements directly to
Owner's contractors, or to any subcontractor or sub-subcontractor, laborer or
materialman who may have performed work on or furnished material to the
Property, and the execution of this Construction Loan Agreement by the Owner
shall and hereby does constitute an irrevocable direction and authorization to
so advance the funds.
4.03 Lender may, at its option, disburse funds to Owner whether under
the terms of this Construction Loan Agreement such disbursement is required or
not. Part or the whole of any advance may be disbursed before or after it
becomes due if the Lender deems it advisable to do so. All such advances shall
be deemed to have been made pursuant to this Construction Loan Agreement and not
in modification thereof.
4.04 Lender may disburse to itself any sums payable to Lender by Owner
on account of interest, costs, charges, fees, brokerage commissions or other
expenses including fees of Lender's attorneys, with like effect as if the same
had been made to Owner. Until such time as the full amount of the Construction
Loan has been disbursed, Lender is hereby authorized to disburse to itself on
the 15th day of each month the amount of the interest payable on the Note or
hereunder.
4.05 Except as is hereinabove provided, disbursements of proceeds of
the Construction Loan will be made only as justified in the sole opinion of the
Lender by the progress of construction.
ARTICLE 5
CONDITIONS TO ADVANCES
All advances or parts of advances will be made subject to the following
conditions as to each advance (each of which Owner covenants to fulfill):
<PAGE>
5.01 That Owner has fully complied with all of the provisions of the
Loan Documents and is entitled to such advance, it being understood that the
making of any advance or part thereof when Owner is not so entitled will not
constitute waiver of such compliance.
5.02 That the terms and conditions of the Loan Documents have been
complied with and there is then no existing default thereunder.
5.03 That the Mortgage is a valid first lien for the full amount then
and theretofore advanced and a good and insurable title to the Property is
vested in the Owner free and clear of all encumbrances except as herein
otherwise provided.
5.04 That the Improvements have been constructed in strict accordance
with the Plans, and the construction thereof and materials used therein are
satisfactory to Lender.
5.05 That the Lender has been furnished with a written certificate of
the Owner as to whether or not the Owner or its agent has been served with any
written notice that a lien may be claimed for any amounts unpaid for materials
furnished or labor performed by any person, firm or corporation furnishing
materials or performing labor of any kind in the construction of any
Improvements. If such notices to the Owner have been served on the Owner, the
notices served shall be listed on the certificate and copies thereof shall be
furnished to the Lender.
5.06 That the Owner has procured (if required by Lender) verified
mechanics' lien waivers and receipted bills showing payment of all parties who
have furnished materials or performed labor of any kind entering into the
construction or installation of any of the Improvements.
5.07 That the Owner has furnished to the Lender evidence satisfactory
to the Lender that the undisbursed proceeds of the Construction Loan will be
sufficient to pay the cost of completing the Improvements as required by the
Loan Documents.
5.08 That the said Improvements are not being constructed in violation
of any covenants or restrictions or zoning ordinances affecting the Property,
and evidence thereof, including copies of all such covenants, restrictions and
zoning ordinances, satisfactory to Lender, has been furnished to Lender.
5.09 That (when required by the Lender) the Lender shall have received
an endorsement with respect to the title insurance policy theretofore delivered,
indicating that since the last preceding advance there has been no change in the
state of title to the Property and no survey exceptions not theretofore approved
by Lender, which endorsement shall have the effect of increasing the coverage of
said policy by an amount equal to the advance then being made unless the policy
by its terms provides for such additional coverage without such endorsement.
5.10 That Owner has furnished to Lender a copy of all building permits
issued and applicable to any existing or future construction on the Property.
<PAGE>
5.11 That Owner has furnished to Lender a construction schedule
including an estimate, satisfactory to Lender, as to the date and amount of each
proposed draw of construction funds to completion of the Improvements.
5.12 That Owner has furnished to Lender, as the same are acquired, all
soil and compaction tests for the land underlying the Improvements together with
a statement from a soil engineer acceptable to Lender certifying that the land
upon which the Improvements are to be constructed will adequately support the
Improvements.
5.13 That Owner has furnished to Lender, at no cost to Lender, in
connection with each request for an advance, the certificate of Lender's
inspector that such advance, in the amount requested, is properly to be made by
Lender hereunder.
ARTICLE 6
AGREEMENTS RELATING TO CONTRACTORS
6.01 The rights of all contractors, subcontractors, sub-subcontractors
and materialmen performing any work in connection with the Improvements, or
furnishing any services, labor or materials thereto, shall be subordinate and
inferior to the Mortgage. Lender shall not be liable to any materialmen,
contractor, subcontractor or sub-subcontractor, laborer or others for goods or
services furnished or delivered by them to or upon the Property or employed in
the Improvements.
6.02 Owner hereby assigns to Lender, effective only in the event of
default by Owner under the Loan Documents, all rights of Owner under its
contract or contracts with Owner's contractor and subcontractors and under its
contract with Owner's architect and Owner's engineer, and Lender shall have the
option after default, in addition to any rights and remedies Lender may have, to
exercise its rights under this assignment. Nothing herein shall be construed to
require Lender to exercise any rights under this section.
ARTICLE 7
DEFAULTS
7.01 If the Owner fails to perform according to the terms of this
Construction Loan Agreement, or if Owner's contractor or subcontractors fail to
perform according to the terms of their contracts with Owner, or if Owner shall
cause or permit conditions to arise so that performance would be rendered unduly
difficult or hazardous for the Lender, or if the Owner shall fail, neglect or
refuse to perform any of Owner's promises or agreements hereunder or breach any
promise, covenant, warranty or agreement made in the Loan Documents, or if it
shall appear that the Improvements are being constructed in violation of any
covenants or restrictions or zoning ordinances affecting the Property, or if it
becomes apparent that the Owner and Owner's contractors will not complete the
Improvements within the time specified herein, or if the Owner shall become
insolvent, or if there is filed a voluntary or involuntary petition in
bankruptcy of the Owner, and the same is not dismissed within 45 days, or an
assignment for the benefit of creditors is made by the Owner, then and in either
such event the Owner shall be considered in default hereunder and the Lender
may, at its option, without prejudice to any other right or remedy Lender may
have as a matter of law, either:
<PAGE>
(a) Withhold further disbursements hereunder; or
(b) At its option, declare all sums evidenced by the Note and
secured by the Mortgage, and all sums due hereunder, to be
immediately due and payable, and unless same are paid on
demand, may foreclose the Mortgage; or
(c) Enter upon and take possession of the Property and assume
full charge of the construction of the Improvements as the
agent of the Owner and Owner's contractors may complete, or
enter into a contract with another to complete, the
Improvements.
The Owner agrees to pay the Lender, on demand, all costs and expenses of
completion of the Improvements, including all sums disbursed by the Lender
incident to said completion and a reasonable charge by the Lender for its
services incident thereto and reasonable attorney's fees incurred by the Lender
incident to said default and the completion of construction, or incident to the
enforcement of any provisions hereof, and all such sums, even though they may,
when added to the monies advanced and disbursed under this Construction Loan
Agreement, exceed the amount of the Note, shall be secured by the lien of the
Mortgage as though the same were a part of the debt originally described in and
secured thereby. If said sums are not paid by the Owner immediately on demand,
the Lender may declare all such sums, and all other sums secured by the
Mortgage, immediately due and payable and may proceed to foreclose the same.
7.02 The times provided for Owner's performance of its covenants and
agreements hereunder are of the essence of this Construction Loan Agreement.
ARTICLE 8
NOTICES
8.01 For the purpose of any notice or demand here under, the address of
the Owner is as set forth on Page 1. Notice or demand shall be deemed to be
given and made when delivered to Owner, or when deposited in the United States
mail, postage prepaid, addressed to Owner at the address given on Page 1.
ARTICLE 9
MISCELLANEOUS
9.01 Nothing herein shall be construed to waive or diminish any right
or security of the Lender under the Note or Mortgage. It is the purpose and
intent hereof to provide safeguards, protections and rights for the Lender in
addition to those provided in the Note and Mortgage and to better secure the
Mortgage.
<PAGE>
9.02 This Construction Loan Agreement shall be binding upon and inure
to the benefit of the parties hereto and their heirs, legal representatives,
successors and assigns. The Owner may be released from obligations and
agreements hereunder only by written instrument of the Lender specifically
providing for such release.
9.03 Owner agrees that during the period of the construction of the
Improvements, Lender shall have the right to erect and maintain on the Property
a sign in form, size and location, satisfactory to Lender, indicating the
financing of the construction by Lender.
9.04 Owner and Lender agree that all matters relating to this
Construction Loan Agreement and the Loan Documents shall be governed by the laws
of the State of Florida.
IN WITNESS WHEREOF, the parties have executed this instrument in manner
and form sufficient to bind them as of the day and year first above written.
Signed, sealed and delivered in the presence of:
__________________________________ FEATHERLITE, INC., formerly known as
Name:_____________________________ FEATHERLITE MFG., INC.
__________________________________
Name:_____________________________ By:__________________________________
Name:________________________________
Title:_______________________________
OWNER
FIRST UNION NATIONAL BANK
__________________________________
Name:_____________________________
By:__________________________________
Name:________________________________
__________________________________ Title:_______________________________
Name:_____________________________
LENDER
<PAGE>
EXHIBIT A
Lot 1, 2, 3, 13, 14 and 15, and the East 104.41 feet of Lot 4 and the East 87.78
feet of Lot 12 of BELL'S SUBDIVISION, according to the Plat thereof as recorded
in Plat Book 6, Page 47, of the Public Records of Seminole County, Florida (less
that part thereof in State Road 400 as described in Official Records Book 220,
Page 405, Seminole County Records)
AND
Lot 27 of FLORIDA LAND AND COLONIZATION COMPANY LIMITED W. BEARDALL'S MAP OF ST.
JOSEPHS according to the Plat thereof as recorded in Plat Book 1, Page 114,
Public Records of Seminole County, Florida (less that part thereof in State Road
400 as described in Official Records Book 220, Page 405, Seminole County
Records).
AND
All that part of BELL ROAD, as shown on BELL'S SUBDIVISION, according to the
plat thereof as recorded in Plat Book 6, Page 47, of the Public Records of
Seminole County, Florida, lying East of the Southerly extension of the West Line
of the East 87.78 feet of Lot 12, said BELL'S SUBDIVISION, and lying West of the
West Right-of-Way Line of State Road No. 400 (Interstate Highway No. 4)
REAL ESTATE PROMISSORY NOTE
$4,000,000.00 November 30, 1998
LENDER: FIRST UNION NATIONAL BANK, (hereinafter termed "Lender"),
P.O. Box 1000, Orlando, Florida 32802
BORROWER: FEATHERLITE, INC., formerly known as FEATHERLITE MFG.,
INC. (hereinafter termed "Borrower"), 1550 Dolgner Place,
Sanford, Florida 32771
BORROWER REPRESENTS HEREWITH THAT THE LOAN EVIDENCED HEREBY IS BEING OBTAINED
FOR THE FOLLOWING PRIMARY PURPOSE:
[X]BUSINESS; [ ]PERSONAL; [ ]FAMILY OR HOUSEHOLD; [ ]AGRICULTURAL
FOR VALUE RECEIVED: to wit, money loaned, the Borrower, jointly and
severally (if more than one), promises to pay to the order of Lender at its
Orlando, Florida office set forth above, or wherever else Lender may specify,
the principal sum of FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00), together
with interest on the principal balance from time to time remaining unpaid in
lawful money of the United States of America which shall be legal tender in
payment of all debts at the time of payment, said principal and interest to be
paid over a term, at the rate, and in the manner following, to wit:
CONTRACT RATE 1-month LIBOR plus 1.8% ("LIBOR-Based Rate"). "LIBOR" is the
OF INTEREST rate for U.S. dollar deposits of that many months maturity as
reported on Telerate page 3750 as of 11:00 a.m., London time,
on the second London business day before the relevant Interest
Period begins (or if not so reported, then as determined by
Bank from another recognized source of interbank quotation).
The unpaid principal balance of this Note shall bear interest
from the date hereof at the LIBOR-Based Rate, as determined by
Lender prior to the commencement of each consecutive interest
period during the term of the Note ("Interest Rate"). Each
interest period will begin on and include the date an interest
payment is due as provided in the Repayment Terms paragraph
and end on but exclude the date the next payment is due, with
the first interest period commencing as of the date of closing
(each an "Interest Period"). Upon determination by Lender of
the Interest Rate for any Interest Period, such Interest Rate
shall remain in effect for the entire Interest Period until
redetermined for the next successive Interest Period.
<PAGE>
REPAYMENT Interest only on the principal amount from time to time unpaid
TERMS hereunder shall be due and payable monthly on the 1st day of
each month, commencing January 1, 1999 and ending June 1,
1999. Commencing on July 1, 1999, this Note shall be due and
payable in principal payments as set forth in Schedule A
attached hereto and made a part hereof together with accrued
interest thereon on the date each principal payment is due.
All remaining principal and interest shall be due and payable
on December 1, 2003.
Privilege is reserved to prepay this Note in whole or in part without
penalty, premium or fee. Any prepayment shall be applied to the principal
balance in the inverse order of maturity.
Anything contained herein to the contrary notwithstanding, if for any
reason the effective rate of interest on this Note should exceed the maximum
lawful rate, the effective rate shall be deemed reduced to and shall be such
maximum lawful rate, and any sums of interest which have been collected in
excess of such maximum lawful rate shall be applied as a credit against the
unpaid balance due hereunder.
Borrower agrees to pay a late charge equal to 5% of each payment of
principal and/or interest which is not paid within 10 days of the date on which
it is due; provided, however, the amount of such late charge shall not exceed
$1,000.00. At Lender's option, commencing with and continuing for so long as
this Note is in Default (as such term is hereinafter defined), interest shall
accrue at the Contract Rate of Interest plus 3% per annum. Further, upon
Borrower's default, and where Lender deems it necessary or proper to employ an
attorney to enforce collection of any unpaid balance or to otherwise protect its
interests hereunder, then Borrower agrees to pay Lender's reasonable attorneys'
and paralegal fees and costs (including appellate costs, if any) and collection
costs. Liability for reasonable attorneys' and paralegal fees and costs shall
exist whether or not any suit or proceeding is commenced.
Interest is computed on the basis of a 360 day year for the actual
number of days in the interest period (the "Actual/360 Computation") unless
indicated below. All payments received during normal banking hours after 2:00
P.M. shall be deemed received at the opening of the next banking day.
Lender's Actual/360 Computation determines the annual effective
interest yield by taking the stated (nominal) interest rate for a year's period
and then dividing said rate by 360 to determine the daily periodic rate to be
applied for each day in the interest period. Application of such computation
produces an annualized effective interest rate exceeding that of the nominal
rate.
At Lender's option, any repayments of this Note, other than by U.S.
currency, will not be credited to the outstanding loan balance until Lender
receives collected funds.
<PAGE>
The term "Obligations" when used herein shall mean and refer to the
obligations of Borrower to pay all sums and perform all obligations of Borrower
required under this Note, the Lender's commitment letter, the Security Documents
(as such are hereinafter defined), and any other loan document executed by
Borrower in connection with this transaction, including any interest rate swap
agreement between Borrower and Lender.
Borrower indemnifies Lender against Lender's loss or expense in
employing deposits as a consequence (a) of Borrower's failure to make any
payment when due under this Note, or (b) any payment, prepayment or conversion
of any loan on a date other than the last day of the Interest Period
("Indemnified Loss or Expense"). The amount of such Indemnified Loss or Expense
shall be determined by Lender based upon the assumption that Lender funded 100%
of that portion of the loan in the London interbank market.
COLLATERAL
As further inducement to Lender to make such a loan to Borrower,
Borrower has executed and delivered to Lender a Mortgage and Security Agreement
and other documents, including a Construction Loan Agreement if the proceeds of
this Note are used for construction purposes (hereinafter together referred to
as the "Security Documents") encumbering certain real property located in
Seminole County, Florida and other property as more particularly described
therein ("Collateral"). The Security Documents set forth terms and provisions
which may constitute grounds for acceleration of the indebtedness represented by
this Note, and additional remedies in the event of a Default hereunder.
The Collateral provided by Borrower to secure this Note shall, at all
times, be at Borrower's risk. The loss, injury to, or destruction of the
Collateral shall not release Borrower from payment or other performance hereof.
Upon any transfer of this Note, the Lender may deliver the Collateral,
or any part thereof, to the transferee, as well as any subsequent holder hereof
who shall thereupon become vested with all the power and rights herein given to
the Lender in respect to the property so transferred and delivered; and the
Lender shall thereafter be forever relieved and fully discharged from any
liability or responsibility with respect to the Collateral so transferred but
with respect to any portion of the Collateral not so transferred, the Lender
shall retain all rights and powers hereby given.
With prior written consent of Lender, which Lender may withhold in its
sole and absolute discretion, other Collateral may be substituted for the
original Collateral herein, in which event all rights, duties, obligations,
remedies and interests provided for, created or granted shall apply fully to
such substitute Collateral.
Upon the occurrence of any Default (as such term is hereinafter
defined), Lender is herewith expressly authorized to exercise its right of
set-off or bank lien as to any monies deposited in demand, checking, time,
savings or other accounts of any nature maintained in and with it by Borrower,
without advance notice. Said right of set-off may also be exercised and
applicable where Lender is indebted to any signer hereof by reason of any
certificate of deposit, note or otherwise.
<PAGE>
EVENTS OF DEFAULT
Borrower shall be in default (herein referred to as a "Default") under
this Note upon the happening of any of the following events, circumstances or
conditions, namely:
(1) Default in the payment or performance of any of the Obligations
provided hereunder or in connection herewith, or any other obligations of
Borrower or any affiliate (as such term is defined in 11 U.S.C. 101(2),
hereinafter "Affiliate") of Borrower or any endorser, guarantor or surety for
Borrower, to Lender or any affiliate of Lender, howsoever created, primary or
secondary, whether direct or indirect, absolute or contingent now or hereafter
existing, due or to be become due, or of any other covenant, warranty, or
undertaking expressed herein, therein, or in any other document establishing
said endorsement, guaranty or surety, or any other document executed by Borrower
in conjunction herewith; or
(2) If any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower, or any guarantor, endorser, or surety for
Borrower in connection with this Note or to induce Lender to make a loan to
Borrower was false in any material respect when made or furnished, or has become
materially false, if such warranty, representation or statement of Borrower or
any guarantor, endorser or surety for Borrower was ongoing in nature; or
(3) Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver, custodian, or trustee for any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding under any bankruptcy or insolvency laws by or against, Borrower
or any endorser, guarantor, or surety for Borrower; or
(4) If Borrower, or any guarantor, endorser, or surety for Borrower
shall allow the acquisition of: (i) substantially all of the business or assets
of Borrower, or of any guarantor or surety for Borrower, (ii) a material portion
of Borrower's business assets if such a sale is outside Borrower's ordinary
course of business, (iii) more than 50% of the outstanding stock, voting power
or general partnership interest, of Borrower in a single transaction or a series
of transactions, (iv) the acquisition by Borrower or Borrower's general partner
of substantially all of the business or assets, or more than 50% of the
outstanding stock or voting power, or controlling general partnership interest
of any other entity, or (v) the entry by Borrower or Borrower's general partner
into any transaction of merger or consolidation without prior written consent of
Lender; or
(5) Failure of Borrower or any endorser, guarantor or surety for
Borrower to maintain its partnership or corporate (as the case may be) existence
in good standing; or
(6) The entry of any monetary judgment or the assessment and/or filing
of any tax lien, against Borrower, or any endorser, surety, or guarantor,
exceeding $50,000.00 in amount, or the issuance of any writ of garnishment,
judicial seizure of, or attachment against, any property of, debts due or rights
of, Borrower, or any endorser, surety or guarantor, specifically including
commencement of any action or proceeding to seize monies of Borrower, or any
endorser, surety or guarantor on deposit in any bank account with Lender; or
<PAGE>
(7) If the Borrower, or any endorser, guarantor, or surety for Borrower
shall be a debtor, either voluntarily or involuntarily, under (and as the term
debtor is defined in) the Bankruptcy Code, or should the Borrower be generally
not paying its debts as such debts become due; or
(8) Failure of the Borrower, or endorsers, guarantors or sureties to
furnish financial statements or other financial information required by Lender;
or
(9) Loss, theft, substantial damage, destruction, sale or encumbrance
to or of any Collateral or the assertion or making of any levy, seizure,
mechanic's or materialman's lien or attachment thereof or thereon.
REMEDIES ON DEFAULT
Upon the occurrence of any of the foregoing events, circumstances or
conditions of Default, and subject to any applicable notice and cure period
provided in this Note, all of the Obligations evidenced herein and secured
hereby shall at the option of the Lender, immediately be due and payable without
notice. Further, Lender shall then have all the rights and remedies of a
"secured party" under the Uniform Commercial Code, as adopted by the State of
Florida.
Without limitation thereto, and subject to any applicable notice and
cure period provided in this Note, Lender shall have the following specific
rights and remedies:
(1) To take immediate possession of the Collateral without notice or
resort to legal process, and for such purpose, to enter upon any premises on
which the Collateral or any part thereof may be situated and remove the same
therefrom, or at its option, to render the Collateral unusable. Further, also at
its option, Lender may dispose of the Collateral on Borrower's premises.
(2) To require Borrower to assemble the Collateral and make it
available to Lender at a place to then be designated by Lender, which is
reasonably convenient to both parties.
(3) To dispose of the Collateral as allowed by the Uniform Commercial
Code, as adopted by the State of Florida, in any County or place selected by
Lender, at either private or public sale (at which public sale Lender may be the
purchaser) with or without having the Collateral physically present at said
site.
(4) To make or have made any repairs deemed necessary or desirable at
time of repossession, possession or sale, the cost of which is to be charged
against Borrower.
(5) To foreclose the Mortgage.
<PAGE>
(6) To exercise its rights of set-off by applying any monies of
Borrower on deposit with Lender toward payment of the Obligations evidenced or
referred to herein or secured hereby, without notice. If any process is issued
or ordered to be served on Lender, seeking to seize Borrower's rights and/or
interest in any bank account maintained with Lender, the balance in any said
account shall immediately be deemed to have been and shall be set-off against
any and all Obligations of Borrower to Lender, as of the time of issuance of any
such writ or process, whether or not Borrower and/or Lender shall then have been
served therewith.
(7) To apply the proceeds realized from the disposition of the
Collateral to satisfy the following items, in the order here listed:
(a) The cost of reimbursing any person whose interest in the premises
is physically damaged by the entry and removal of the Collateral, upon
Borrower's failure to do so; then next to
(b) The expenses of taking, removing, holding for sale, repairing or
otherwise preparing for sale and selling of said Collateral specifically
including the Lender's reasonable attorneys' fees (including paralegal fees or
appellate costs, if any) and both legal and collection expenses; then next to
(c) The expense of liquidating any liens, security interests, paralegal
fees, attachments or encumbrances superior to the security interests herein
created or described; then next to
(d) All accrued but unpaid late charges and interest; and finally to
(e) The unpaid principal hereunder and any other debt owed to Lender by
any signer hereof.
Any surplus, after the satisfaction of the foregoing items (a) through
(e) shall be paid to Borrower or to any other party lawfully entitled thereto
and known to Lender. Further, if proceeds realized from the disposition of
Collateral shall fail to satisfy any of the foregoing items (a) through (e),
Borrower shall forthwith pay the deficiency balance to Lender.
Provided, however, Lender shall give Borrower thirty (30) days written
notice of any non-monetary default before pursuing any remedy against Borrower.
Any judgment entered in connection with this Note shall bear interest
on the judgment amount at the highest rate of interest permitted under Chapter
687, Florida Statutes, or any future successor or similar statute. All parties
liable for the payment of this Note agree to pay the Lender reasonable
attorneys' and paralegal fees and costs for the services and expenses of counsel
employed after maturity or Default to collect this Note (including any appeals
relating to such enforcement proceedings), or to protect or enforce the security
hereto, whether or not suit be brought.
<PAGE>
Borrower hereby agrees that, in consideration of the Lender funding the
loan evidenced by this Note, in the event that the Borrower shall (i) file with
any bankruptcy court of competent jurisdiction or be the subject of any petition
under Title 11 of the United States Code, as amended ("Title 11"); (ii) be the
subject of any order for relief issued under Title 11; (iii) file or be the
subject of any petition seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future federal or state act or law relating to insolvency or bankruptcy, or
other relief from creditors for debtors; (iv) have sought or consented to or
acquiesced in the appointment of any trustee, receiver, conservator, or
liquidator; (v) be the subject of any order, judgment, or decree entered by any
court of competent jurisdiction approving a petition filed against such party
for any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to insolvency or bankruptcy, or other relief from creditors for
debtors, the Lender shall thereupon be entitled to relief from any automatic
stay imposed by Section 362 of Title 11, or otherwise, on or against the
exercise of the rights and remedies otherwise available to the Lender under this
Note and the Security Documents, and as otherwise provided by law.
The remedies of Lender as provided herein and in any of the Security
Documents shall be cumulative and concurrent, and may be pursued singly,
successively or together, at the sole discretion of Lender and may be exercised
as often as occasion therefor shall arise. No act of omission or commission of
Lender, including specifically any failure to exercise any right, remedy or
recourse, shall be effective as a waiver thereof unless it is set forth in a
written document executed by Lender and then only to the extent specifically
recited therein. A waiver or release with reference to one event shall not be
construed as continuing, as a bar to, or as a waiver or release of, any
subsequent right, remedy or recourse as to any subsequent event.
GENERAL PROVISIONS
No waivers, amendments or modifications of this Note shall be valid
unless in writing. Further, this Note shall be governed by and construed under
the laws of the State of Florida. All terms and expressions contained herein
which are defined in the Uniform Commercial Code of the State of Florida shall
have the same meaning herein as in said Articles of said Code. No waiver by
Lender of any Default(s) shall operate as a waiver of any other Default or the
same Default on a future occasion. All rights of Lender hereunder shall inure to
the benefit of its successors and assigns, and all obligations of Borrower shall
bind its heirs, executors, administrators, successors and/or assigns.
If more than one person has signed this instrument, such parties are
jointly and severally obligated hereunder. Further, use of the masculine pronoun
herein shall include the feminine and neuter and also the plural. If any
provision of this instrument shall be prohibited or invalid under applicable
law, such provision shall be ineffective but only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Note. "Note" refers to the entire promissory
note herein. In the case of conflict between the terms of this Note and the
Security Documents, or any Commitment Letter issued in connection herewith, the
priority of controlling terms shall be first this Note, the Security Documents,
then the Commitment Letter.
<PAGE>
In the event any provision(s) of this instrument shall be left blank or
incomplete, Borrower hereby authorizes and empowers Lender to supply and
complete the necessary information as a ministerial task consistent with the
understanding between the parties.
Borrower warrants that Borrower does not have either a "record" or
reputation for violating laws of the United States or of any State relating to
liquor (as referred to in 18 U.S.C.A. 3617, et seq.) or narcotics and/or any
commercial crimes.
Borrower shall be liable for all documentary and intangible taxes
assessed at closing or from time to time during the life of the transaction.
Borrower and all sureties, endorsers and guarantors of this Note
hereby: (a) waive demand, presentment for payment, notice of nonpayment,
protest, notice of protest and all other notice (except as may be expressly set
forth in this Note or any Guaranty), filing of suit and diligence in collecting
this Note, in enforcing any of the security rights or in proceeding against the
Collateral; (b) agree to any substitution, exchange, addition or release of any
of the Collateral, or the addition or release of any party or person primarily
or secondarily liable hereon; (c) agree that Lender shall not be required first
to institute any suit, or to exhaust his, their or its remedies against Borrower
or any other person or party to become liable hereunder or any Collateral in
order to enforce payment of this Note; (d) consent to any extension,
rearrangement, renewal or postponement of time of payment of this Note and to
any other indulgence with respect hereto without notice, consent or
consideration to any of the foregoing, and (except for an express written
release by Lender of any such person), Borrower, all sureties, endorsers and
guarantors of this Note shall be and remain jointly and severally, directly and
shall primarily, liable for all sums due under this Note.
As used herein, the words, "Borrower" and "Lender" shall be deemed to
include Borrower and Lender as defined herein and their respective heirs,
personal representatives, successors and assigns.
Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any claim or controversy arising out of,
or relating to this Note or the Security Documents between the parties hereto (a
"Dispute") shall be resolved by binding arbitration conducted under and governed
by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules")
of the American Arbitration Association (the "AAA") and the Federal Arbitration
Act. Disputes may include, without limitation, tort claims, counterclaims,
disputes as to whether a matter is subject to arbitration, claims brought as
class actions, or claims arising from documents executed in the future. A
judgment upon the award may be entered in any court having jurisdiction.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.
<PAGE>
All arbitration hearings shall be conducted in the city in which the
office of Lender first stated above is located. A hearing shall begin within 90
days of demand for arbitration and all hearings shall be concluded within 120
days of demand for arbitration. These time limitations may not be extended
unless a party shows cause for extension and then for no more than a total of 60
days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration
Rules shall be applicable to claims of less than $1,000,000. Arbitrators shall
be licensed attorneys selected from the Commercial Financial Dispute Arbitration
Panel of the AAA. The parties do not waive applicable Federal or state
substantive law except as provided herein.
Notwithstanding the preceding binding arbitration provisions, the
parties agree to preserve, without diminution, certain remedies that any party
may exercise before or after an arbitration proceeding is brought. The parties
shall have the right to proceed in any court of proper jurisdiction or by
self-help to exercise or prosecute the following remedies, as applicable: (i)
all rights to foreclose against any real or personal property or other security
by exercising a power of sale or under applicable law by judicial foreclosure
including a proceeding to confirm the sale; (ii) all rights of self-help
including peaceful occupation of real property and collection of rents, set-off,
and peaceful possession of personal property; (iii) obtaining provisional or
ancillary remedies including injunctive relief, sequestration, garnishment,
attachment, appointment of receiver and filing an involuntary bankruptcy
proceeding; and (iv) when applicable, a judgment by confession of judgment. Any
claim or controversy with regard to any party's entitlement to such remedies is
a Dispute.
Each party agrees that it shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waives any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute, whether the Dispute is resolved by
arbitration or judicially.
Borrower acknowledges that by agreeing to binding arbitration it has
irrevocably waived any right it may have to a jury trial with regard to a
Dispute.
IN WITNESS WHEREOF, the Borrower, on the day and year first written
above, has caused this Note to be executed under seal.
FEATHERLITE, INC., formerly known as
FEATHERLITE MFG., INC.
By:___________________________________
Name: Norman B. Allen
Title: Vice President
Documentary stamps in the amount of $14,000.00 have been affixed to the original
Mortgage and Security Agreement of even date herewith which secures this Note.
<PAGE>
THIS LOAN IS PAYABLE IN FULL ON NOVEMBER 15, 2003. AT MATURITY BORROWER MUST
REPAY THE ENTIRE PRINCIPAL BALANCE OF THE LOAN AND UNPAID INTEREST THEN DUE. THE
LENDER IS UNDER NO OBLIGATION TO REFINANCE THE LOAN AT THAT TIME. BORROWER WILL,
THEREFORE, BE REQUIRED TO MAKE PAYMENT OUT OF OTHER ASSETS BORROWER MAY OWN, OR
BORROWER WILL HAVE TO FIND ANOTHER LENDER WILLING TO LEND THE MONEY AT
PREVAILING MARKET RATES, WHICH MAY BE CONSIDERABLY HIGHER THAN THE INTEREST RATE
ON THIS LOAN.
EXHIBIT 10.20
SWAP TRANSACTION
CONFIRMATION
Date: November 30, 1998
To: FEATHERLITE, INC. ("Counterparty")
Address: Highways 63 & 9
Cresco, IA 52136
Fax: (319) 547-6100
Attention: Jeffery A. Mason
From: FIRST UNION NATIONAL BANK ("First Union")
Ref. No. 97862/130381-2
Dear Mr. Mason:
This confirms the terms of the Transaction described below between Counterparty
and First Union. This Transaction is subject to the 1991 ISDA Definitions
published by the International Swaps and Derivatives Association, Inc. ("ISDA
Definitions"), which are incorporated herein by reference. Fixed Amounts and
Floating Amounts for each applicable Payment Date hereunder will be calculated
in accordance with the ISDA Definitions, and if any Fixed Amount and Floating
Amount are for the same Payment Date hereunder, then those amounts shall not be
payable and instead the Fixed Rate Payer shall pay the positive difference, if
any, between the Fixed Amount and the Floating Amount, and the Floating Rate
Payer shall pay the positive difference, if any, between the Floating Amount and
the Fixed Amount.
Transaction Type: Interest Rate Swap
Currency for Payments: U.S. Dollars
Notional Amount: (1) During the Flexible Notional Period, the Notional Amount
shall be $0.00 on the Effective Date, and increasing
thereafter by the principal amount of each advance
of the Project Loans as and when each such advance is made
during the Flexible Notional Period, provided that the
Notional Amount shall not exceed $4,000,000.00 ("Flexible
Notional Limit") at any time during the Flexible Notional
Period. The Notional Amount in effect on any date during the
Flexible Notional Period shall be computed only in respect of
the sum of advances made on the Project Loans up to the
Flexible Notional Limit, and the Notional Amount shall not be
reduced during the Flexible Notional Period by the repayment
of all or any portion of the advances of the Project Loans,
either before, on or after the Fixed Notional Start Date.
<PAGE>
(2) During the Flexible Notional Period, if the Notional
Amount increases on any date except a Period End Date of a
Calculation Period, then the Fixed Amount and Floating Amount
for that Calculation Period shall be computed based on each
change of the Notional Amount in that Calculation Period and
the number of days that such Notional Amount was in effect
during that Calculation Period. Counterparty agrees to provide
First Union with such information and documentation as First
Union shall reasonably request to ascertain the amounts and
dates of advances of the Project Loans.
(3) During the Fixed Notional Period, the Notional Amount
shall be for a Calculation Period, the amount set forth
opposite that Calculation Period on Attachment I hereto.
(4) "Flexible Notional Period" means the period from and
including the Effective Date to but excluding the Fixed
Notional Start Date, and "Fixed Notional Period" means the
period from and including the Fixed Notional Start Date to but
excluding the Termination Date.
(5) "Fixed Notional Start Date" means June 1, 1999, subject to
the Modified Following Business Day Convention, provided that
if, prior to such date, an Early Termination Date occurs or is
designated under the Master Agreement referred to below and
this Transaction is an Affected Transaction as defined
therein, the Fixed Notional Start Date shall be the Early
Termination Date.
(6) "Project Loans" means that certain loan ("First Union
Loan") evidenced by a certain promissory note dated November
30, 1998 executed by Featherlite, Inc. ("Borrower") in favor
of First Union National Bank, the proceeds of which are to be
used in connection with the construction or completion of the
Project, and each and every other loan or financing
transaction the proceeds of which are used in connection with
the construction or completion of the Project in addition to,
or in lieu of, the First Union Loan.
(7) "Project" means the commercial sales center to be
constructed with the proceeds of the Project Loans, together
with the acquisition or purchase of any real or personal
property in connection therewith, as more specifically
described in the commitment letter or other loan documents for
the First Union Loan.
(8) Counterparty hereby acknowledges that the payments due by
it under this Transaction shall be due (i) whether or not any
closing of any of the Project Loans takes place, (ii) whether
or not any advance of the Project Loans has been made, is
<PAGE>
outstanding or is repaid, either before, during or after the
Flexible Notional Period or Fixed Notional Period, and (iii)
whether or not construction of the Project ever commences.
Term:
Trade Date: November 27, 1998
Effective Date: November 30, 1998
Termination Date: December 1, 2003, subject to the Modified
Following Business Day Convention. The
Termination Date shall not be affected by
any repayment of the Project Loans.
Fixed Amounts:
Fixed Rate Payer: Counterparty
Payment Dates: Monthly on the 1st day of each month
commencing December 1, 1998, through and
including the Termination Date.
Business Day
Convention: Modified Following
Business Day: New York
Fixed Rate: 7.34%
Fixed Rate Day
Count Fraction: Actual/360
Floating Amounts:
Floating Rate Payer: First Union
Payment Dates: Monthly on the 1st day of each month
commencing December 1, 1998, through and
including the Termination Date.
Business Day
Convention: Modified Following
Business Day: New York
Floating Rate for
Initial Calculation
Period: Determined two London Banking Days before
the Effective Date
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 1 Month
Spread: Plus 1.80%
Floating Rate Day
Count Fraction: Actual/360
Floating Rate
determined: Two London Banking Days prior to each
Reset Date
Reset Dates: The first day of each Calculation Period
Compounding: Inapplicable
Rounding convention: 5 decimal places per the ISDA Definitions
Calculation Agent: First Union
<PAGE>
Payments to First Union: First Union Charlotte
Capital Markets
Attention: Derivatives Desk
Fed. ABA No. 053000219
Ref. No.: 97862/130381-2
First Union Contacts: Settlements and/or Rate Resets:
Tel: (800) 249-3865
Fax: (704) 383-9139
Documentation and/or Collateral:
Tel: (704) 383-5678
Fax: (704) 383-9139
Please quote transaction reference number.
First Union Address: One First Union Center
301 South College Street DC-4
Charlotte, NC 28288-0601
Payments to Counterparty: Please forward payment instructions to
First Union in Charlotte, NC. Payments
will not be made to Counterparty without
its written instructions.
Documentation
This Confirmation is a binding and complete contract between the parties,
provided that if at any time there exists a master agreement (however described)
between the parties governing this Transaction ("Master Agreement"), this
Confirmation supplements, forms part of and will be governed by the Master
Agreement. Unless otherwise provided in the Master Agreement, this Confirmation
is governed by the law (and not the law of conflicts) of the State of New York.
<PAGE>
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing a copy of this Confirmation and returning it to us.
Very truly yours,
FIRST UNION NATIONAL BANK
By: /s/ N. Heusser
Name: Norman Heusser
Title: Vice President
By: /s/ Ryan Hale
Name: Ryan S. Hale
Title: Capital Markets Officer
Accepted and confirmed as of the date first above written.
FEATHERLITE, INC.
By: /s/ Conrad D. Clement
Name: Conrad D. Clement
Title: President
<PAGE>
Attachment I - Amortization Schedule for 97862/130382
(Dates subject to Modified Following Business Day Convention)
Date Notional Outstanding Notional Reduction
---- -------------------- ------------------
01 Jun 99 4,000,000.00 0.00
01 Jul 99 3,987,748.93 12,251.07
02 Aug 99 3,977,049.04 10,699.89
01 Sep 99 3,964,657.58 12,391.46
01 Oct 99 3,952,190.33 12,467.25
01 Nov 99 3,940,452.63 11,737.70
01 Dec 99 3,927,837.33 12,615.30
04 Jan 00 3,918,348.23 9,489.10
01 Feb 00 3,903,999.90 14,348.33
01 Mar 00 3,890,365.64 13,634.26
03 Apr 00 3,879,823.58 10,542.06
01 May 00 3,865,255.32 14,568.26
01 Jun 00 3,852,968.14 12,287.18
03 Jul 00 3,841,388.88 11,579.26
01 Aug 00 3,827,384.42 14,004.46
01 Sep 00 3,814,857.88 12,526.54
02 Oct 00 3,802,252.16 12,605.72
01 Nov 00 3,788,791.53 13,460.63
01 Dec 00 3,775,248.56 13,542.97
02 Jan 01 3,763,162.22 12,086.34
01 Feb 01 3,749,462.49 13,699.73
01 Mar 01 3,734,150.01 15,312.48
02 Apr 01 3,721,795.52 12,354.49
01 May 01 3,707,083.93 14,711.59
01 Jun 01 3,693,797.02 13,286.91
02 Jul 01 3,680,426.13 13,370.89
01 Aug 01 3,666,220.33 14,205.80
04 Sep 01 3,654,917.64 11,302.69
01 Oct 01 3,638,320.22 16,597.42
01 Nov 01 3,624,598.69 13,721.53
03 Dec 01 3,611,529.44 13,069.25
02 Jan 02 3,596,902.22 14,627.22
01 Feb 02 3,582,185.53 14,716.69
01 Mar 02 3,565,918.09 16,267.44
01 Apr 02 3,551,738.93 14,179.16
01 May 02 3,536,745.99 14,992.94
03 Jun 02 3,523,824.66 12,921.33
01 Jul 02 3,507,224.04 16,600.62
01 Aug 02 3,492,673.90 14,550.14
03 Sep 02 3,479,456.03 13,217.87
01 Oct 02 3,462,602.12 16,853.91
01 Nov 02 3,447,769.95 14,832.17
02 Dec 02 3,432,844.03 14,925.92
02 Jan 03 3,417,823.77 15,020.26
03 Feb 03 3,403,405.43 14,418.34
03 Mar 03 3,386,117.35 17,288.08
01 Apr 03 3,369,420.97 16,696.38
01 May 03 3,353,312.85 16,108.12
02 Jun 03 3,338,473.61 14,839.24
01 Jul 03 3,321,495.52 16,978.09
01 Aug 03 3,305,771.48 15,724.04
02 Sep 03 3,290,622.06 15,149.42
01 Oct 03 3,273,361.04 17,261.02
03 Nov 03 3,258,667.56 14,693.48
01 Dec 2003 0.00 3,258,667.56
Financial Information
SELECTED FINANCIAL INFORMATION
(In thousands, except per share and stock price data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FIVE YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $ 190,874 $ 134,387 $ 99,329 $ 69,159 $ 60,172
Cost of goods sold 160,364 111,764 84,643 58,673 47,521
-------------------------------------------------------------------------
Gross profit 30,510 22,623 14,686 10,486 12,651
Selling and administrative expenses 22,385 15,998 12,492 9,993 8,075
-------------------------------------------------------------------------
Operating income 8,125 6,625 2,194 493 4,576
Interest expense (2,961) (1,800) (1,450) (799) (667)
Other income, net 823 646 660 1,478 344
-------------------------------------------------------------------------
Income before taxes 5,987 5,471 1,404 1,172 4,253
Provision for Income taxes 2,337 2,189 562 471 392
-------------------------------------------------------------------------
Net income $ 3,650 $ 3,282 $ 842 $ 701 $ 3,861
-------------------------------------------------------------------------
Pro Forma Statement of Income Data
Net income, as reported $ -- $ -- $ -- $ -- $ 3,861
Pro forma provision for taxes -- -- -- -- 1,152
-------------------------------------------------------------------------
Pro forma net income $ -- $ -- $ -- $ -- $ 2,709
=========================================================================
Net income per share - Basic & Diluted $ 0.56 $ 0.52 $ 0.13 $ 0.12 $ 0.60
=========================================================================
Cash Distributions for taxes* $ -- $ -- $ -- $ 305 $ 1,795
=========================================================================
Weighted average common shares outstanding
Basic 6,462 6,255 6,106 5,955 4,509
Diluted 6,559 6,314 6,107 6,006 4,518
=========================================================================
Balance Sheet Data (End of Period) 1998 1997 1996 1995 1994
-------------------------------------------------------------------------
Working capital $ 29,163 $ 21,643 $ 15,165 $ 15,360 $ 9,516
Total assets 106,788 75,508 53,534 46,084 33,258
Total long-term debt, net current maturities 30,914 22,075 13,346 15,194 5,282
Total shareholders' investment 29,543 23,877 20,595 17,953 17,252
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Quarterly Financial Data (Unaudited)
Gross Operating Net Net Income Per Share Closing Stock Price
Net Sales Profit Income Income Basic Diluted High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998
First Quarter $41,742 $6,917 $2,256 $1,141 $0.18 $0.18 $9.00 $7.38
Second Quarter 49,294 7,389 2,113 1,005 0.16 0.15 12.50 $8.13
Third Quarter 48,895 7,529 1,630 524 0.08 0.08 12.38 $7.56
Fourth Quarter 50,943 8,675 2,126 980 0.15 0.15 7.63 $4.00
- ------------------------------------------------------------------------------------------------------------------------------------
1997
First Quarter $34,034 $5,095 $1,495 $756 $0.12 $0.12 $8.63 $5.75
Second Quarter 32,652 5,201 1,384 614 0.10 0.10 8.63 $6.63
Third Quarter 32,728 5,802 1,587 889 0.14 0.14 9.00 $6.63
Fourth Quarter 34,973 6,525 2,159 1,023 0.16 0.16 8.94 $6.88
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's common stock trades on The NASDAQ Stock Market under the symbol
"FTHR."
*Represent only distribution for estimated shareholders' federal and state
income tax liabilities from Company's status as S corporation prior to initial
public stock offering. No other dividends were paid. The Company is restricted
from paying dividends. See Liquidity & Capital Resources in MD&A for a
discussion of these restrictions.
<PAGE>
Management's Discussion And Analysis
The following discussion pertains to the Company's results of operations
and financial condition for the years ended December 31, 1998, 1997 and 1996.
Results of Operations
Net Sales
The Company achieved an 42.0% increase in net sales to $190.9 million for
the year ended December 31, 1998 following an increase of 35.3 % to $134.4
million in 1997 and an increase of 43.6% to $99.3 million in 1996. These gains
were the result of growth in both the trailer and motorcoach business segments
in 1998 and 1997 as well as acquisitions during the periods. In 1998, the
Company acquired the assets of Mitchell Motorcoach Sales, Inc. and in 1996, the
assets of Vantare International, Inc. These companies are manufacturers of
luxury motorcoaches.
Gross Profit
Significant sales expansion caused gross profit to increase to $30.5
million in 1998 from $22.6 million in 1997 and $14.7 million in 1996. As a
percentage of sales, gross profit was 16.0% in 1998 compared to 16.8% in 1997
and 14.8% in 1996.
The decrease in gross profit percentage in 1998 compared to 1997 is due
primarily to the impact of Vogue Division operations since it was acquired in
May, 1998. Without Vogue, the gross profit percentage would have increased to
17.0% in 1998. Including Vogue, total material costs as a percentage of sales
increased by 1.9% due in large part to increased used coach sales. Used coach
sales have had a dampening impact on the overall gross profit percentage as they
have a lower than average gross profit. Aluminum costs were about 4% higher in
1998 but lower as a percentage of overall sales. Other materials costs also have
increased due to the growing motorcoach segment of the business as motorcoaches
have higher material content than trailers. These material cost increases were
partially offset by reduced labor and overhead costs as a percentage of sales
which were 1.1% lower than in 1997.
<PAGE>
The gross profit percentage increase in 1997 over 1996 of 2.0% benefited
from reduced aluminum costs, which were approximately 5% lower than in 1996.
This reduction was partially offset by the effect of increased used motorcoach
sales, changes in other materials due to product mix and improved labor
efficiency.
The gross profit percentage decrease of 0.4% in 1996 compared to 1995
relates primarily to the increased cost of luxury motorcoach conversion shells
and used coaches which were new in 1996 with the acquisition of Vantare. These
additional costs offset the effect of aluminum cost decreases of 6% during the
year. Other materials costs related to trailers increased due to greater sales
of utility trailers, steel horse and livestock trailers and other trailers which
have higher percentage of non-aluminum materials.
Aluminum is traded daily on the commodity markets and fluctuates in price.
The average Midwest delivered market cash price per pound for ingot aluminum
during the three years ended December 31, 1998, as reported to the Company by
its suppliers, was $.66 in 1998, $.78 in 1997, and $.72 in 1996. The Company's
cost of aluminum varies from these market prices due to vendor processing
charges, timing of purchases, contractual commitments with suppliers for
specific prices and other factors.
Selling, Administration and Other
Significant sales growth continued to reduce selling and administrative
costs as a percent of sales. Selling and administrative expenses decreased as a
percentage of sales to 11.7% in 1998 from 11.9% in 1997 and 12.6% in 1996. These
costs increased by $6.5 million, including $1.9 million related to the Vogue
acquisition, to $22.4 in 1998 from $15.9 million in 1997 and from $12.4 million
in 1996. The increase in 1998 was due to: greater personnel costs ($2.9 million)
as the organization continues to grow both internally as well as through
acquisitions; increased advertising and promotion costs ($1.7 million) to
stimulate sales; and other increases ($1.9 million) consistent with the
Company's sales growth.
The increase in 1997 reflects greater advertising and marketing expense due
to a full year's operation at Vantare as well as other added selling and
administrative expenses related to growth.
Interest expense increased by $1.2 million in 1998 to $3.0 million from
$1.8 million in 1997 and $1.5 million in 1996. These increases are the result of
increased levels of borrowings for working capital and aircraft in 1998 and
1997. Other income was higher in 1998 than 1997 or 1996 due to more fees
received for arranging retail financing contracts with finance companies.
<PAGE>
Provision for income taxes
The provision for income taxes reflects an effective federal and state
income tax rate of approximately 40% in 1998, 1997 and 1996.
Segment information
The following discussion pertains to information on the Company's two
principal business segments as set forth in Note 11 to the financial statements
for the years ended December 31, 1998, 1997 and 1996.
Trailer Segment
1998 1997 1996
---- ---- ----
Net sales (000's) $113,017 $99,703 $ 84,421
Segment income (000's) 9,989 11,034 5,680
Segment income percent 8.8% 11.1% 6.7%
Trailer segment sales increased by 13.4% in 1998 and 18.1% in 1997. On a
product line basis, horse trailer sales and car/race car transporter sales were
up signifi-cantly with increases of 24% and 19%, respectively. Utility trailer
sales were also 9% higher and commercial trailer sales were up 7% due to
increased sales of vending trailers. Livestock trailer sales were down 3%,
reflecting economic difficulties faced by family farm owners and unfavorable
livestock prices. In 1997, there were significant sales gains in most product
lines, with horse trailers up 5%, a 20% increase in livestock trailers, a 23%
increase in sales of snowmobile and other recreational trailers and a 56%
increase in race car/specialty transporter trailers. Commercial trailers were
down 28% in 1997 due mainly to decreased sales of drop frame moving and other
specialty van sales as well as the discontinuation of semi- trailer sales in
1996. Other factors contributing to the trailer sales growth in 1998 and 1997
included the introduction of new trailer models in existing product lines, the
introduction of new product lines and the expanded use of specialty trailers in
activities related to hobbies and entertainment of end user customers. A portion
of the sales increase in 1998 and 1997 was the result of price increases ranging
from 2-5% introduced in those years.
<PAGE>
Trailer segment income decreased in 1998 due mainly to a reduced gross
margin percentage resulting from increased labor and overhead costs not fully
covered by price increases and efficiency improvements. Segment income increased
in 1997 due to higher sales volume and improvements in gross margin due to
reduced aluminum and other material costs as well as improved labor and overhead
efficiency. In 1998 segment income also was reduced by higher sales and
marketing expenses, which were 6.5% of sales compared to 5.9% in 1997 and 6.3%
in 1996.
Motorcoach segment
1998 1997 1996
---- ---- ----
Net sales (000's) $77,857 $34,684 $14,908
Segment income (000's) 3,949 813 775
Segment income percent 5.1% 2.3% 5.2%
The Company began developing and manufacturing luxury motorcoaches in 1995
and it acquired the assets of Vantare International, Inc. in July, 1996. This
segment was further expanded by the acquisition of the assets of Mitchell
Motorcoach Sales, including the Vogue brand name in May,1998. Net sales for this
segment increased by 124% in 1998, including $23 million related to the Vogue
brand. In 1997, sales increased by 133% as 1996 only included operations of
Vantare for six months. Sales in 1998, 1997 and 1996 include sales of used
trade-ins in the amount of $24.5 million, $12.4 million and $5.2 million,
respectively, which have a lower margin than new unit sales.
Motorcoach segment income was increased in 1998 by improvements in margin
percentages realized in the Vantare Division. These improvements were partially
offset by lower than normal margins on Featherlite Vogue(R) motorcoaches, many
of which were sold at prices established before the acquisition. Segment income
in 1997 was reduced by the costs related to development of slide-out models as
well as the sale of certain new and used coaches at lower than normal margins
and increased marketing and administrative costs. Marketing and administrative
expenses related to this segment increased in 1998 and 1997 as the organization
was expanded to meet anticipated sales growth and were approximately 7.7% of
segment income in 1998 compared to 6.3% in 1997 and 5.7% in 1996.
Looking Forward
The statements made in this annual report which are forward looking in time
involve risks and uncertainties discussed here and in the Company's Form 10-K
and other filings with the SEC, including but not limited to product demand and
acceptance of new products in each segment of the Company's markets,
fluctuations in the price of aluminum, competition, facilities utilization and
aircraft purchases and sales.
<PAGE>
Sales are expected to be strong in 1999 due primarily to continued strength
in the motorcoach segment. Trailer segment growth may be reduced compared to
recent years due to continued economic difficulties in the agribusiness economy
and competitive pressures within this segment. The Company believes its name
recognition and close affiliation with the motorsports industry will continue to
have a positive impact on its sales of specialty trailers and luxury
motorcoaches as well as other trailers used for leisure and entertainment
purposes. With more than 75% of its revenue from end users in the motorsports
and leisure and entertainment categories, which also includes horse trailers,
and with its strong position in the livestock trailer market, the Company
believes it is strategically well-situated to respond to competitive pressures
and to benefit from the growth in these markets, particularly if there is
improvement in difficulties recently affecting the agribusiness economy. The
Company will continue to put strong emphasis on its horse and livestock product
lines through the introduction of new models and offering new features in
existing models. The motorcoach segment will continue to add significant luxury
motorcoach sales volume in 1999 as we anticipate the strong growth in this
market to continue. Additional sales are expected in snowmobile and other
recreational trailers to Polaris and Yamaha dealers. These overall expectations
may not be met if there are significant changes in the general economy or in the
market for particular types of trailers or motorcoaches. Price increases of 2%
announced in late 1998 will be effective for all new orders received 1999. The
total sales order backlog at December 31, 1998 was approximately $31 million,
including $19 million in motorcoach orders, compared with $27 million at
December 31, 1997. All of this sales order backlog will be delivered in 1999.
The Company has obtained commitments from suppliers to provide, at an
agreed upon fixed price, substantially all of its total aluminum requirements
for much of 1999. The average cost of aluminum will decrease about 5% in 1999
from 1998 levels and this, together with price increases already in effect,
should positively impact trailer segment income.
There is a risk to future operating results related to losing a major
supplier of aluminum. This risk is relatively nominal as there are alternate
sources of supply. It may take a little longer to replace an extruded aluminum
supplier due to the fact that dies are required and would have to be made. The
Company routinely tries to keep at least three suppliers of each shape so it has
a backup supplier, if necessary. Many of these suppliers have multiple plants
that can be used to produce the material the Company requires.
There is also a risk if the Company were to lose its sole supplier of
motorcoach conversion shells, Prevost Car Company, although it could purchase
certain shells from other manufacturers. The Company does have insurance to
cover certain losses it may sustain if Prevost's plant is destroyed by fire or
certain other catastrophes.
The Company uses one subcontractor to provide paint and graphic design work
to meet customer specifications on certain custom trailers and specialty
transporters. There is a risk to the timely delivery of these trailers if there
would be an unforeseen interruption in the subcontractor's ability to provide
these services or if the customer delays providing the specifications to the
subcontractor.
Sales and administration expenses are expected to increase at a lower rate
than sales. Interest expense will likely remain higher in 1999 as the average
level of debt is expected to be greater in 1999 than 1998 due to increased
inventories and real estate debt, although the effective interest rate will be
lower unless the prime rate of interest increases during the year. In 1997, the
Company signed a joint venture agreement with GMR Marketing to form
Featherlite/GMR Sports Group, LLC. This joint venture will focus on developing
promotional events and implementing marketing strategies in the motorsports
industry. It is not expected that the Company's share of the operating results
related to its investment in this joint venture will be significant until 1999
and thereafter.
The Company has made increased use of leverage and incurred increased
interest and related expenses in the three years ended December 31, 1998.
Increased debt has been incurred in connection with financing operations of the
Vantare Division and the Vogue Division and in financing additional working
capital requirements. In 1999, additional debt will be incurred to finance
construction of a sales and service center at the Company's Sanford, Florida
location. Increased leverage and related expenses create a risk to future
operating results of the Company.
<PAGE>
Based on a recent assessment by the Company of the computer hardware and
software programs in its information technology (IT) systems and non-IT systems
and based on communications with significant third party vendors providing the
Company payroll and benefit services, the Company has determined certain
modifications will be required to properly utilize dates beyond December 31,
1999.The Company has begun purchasing hardware and making modifications to
existing software to correct these problems. It is estimated that these
activities will be completed by June 30, 1999 at a cost ranging from $75,000 to
$100,000 which will not have a material impact on its business, financial
condition or results of operation. The Company is also contacting vendors which
provide it production materials and supplies to determine the status of their
Year 2000 assessment and readiness programs and whether they are aware of any
readiness issues which could impair their ability to provide materials to the
Company on a timely basis. We are approximately 60% complete with this survey
and are not aware of any material delivery problems which would adversely impact
the Company. We plan to continue to follow-up during 1999 with our core vendors
to update our information regarding the Year 2000 issues. We are unaware of any
material risk to the Company associated with Year 2000 issues at this time. We
will develop contingency plans to address issues which may be identified as we
continue to obtain information from our vendors. We believe that the most
reasonably likely worst case year 2000 scenario would be a decrease in the
efficiency with which the Company is able to procure materials and supplies from
its vendors and produce its products and this could have an adverse effect on
the Company's results of operations and financial condition if prolonged.
Liquidity and Capital Resources
In 1998, the Company used net cash of $1.4 million, including $11.7 million
used for operating activities, $13.0 million provided by increased debt and $2.7
million used for capital expenditures for property, equipment and aircraft.
Operating activities used net cash of $11.7 million for the year 1998,
primarily for investment in working capital. Net income for the year ended
December 31, 1998, provided cash of $3.7 million. This amount was increased by
adjustments for depreciation and amortization of $2.1 million and reduced by
other non-cash items in a net amount of $240,000. Net increases in receivables,
inventories and other working capital items used cash of $17.3 million,
excluding the effect of the Vogue acquisition which increased receivables,
inventory, prepaid expenses, and other assets by $12.0 million and increased
current liabilities by $9.0 million. Non-acquisition related increases in
receivables and inventories used cash of $13.3 million and decreased customer
deposits and other working capital items used cash of $4.0 million. Inventories
increased by $10.3 million, including $9.9 million to support the increased
level of sales of the motorcoach segment and the anticipated strong sales in the
first quarter of 1999. Additional increases may be required in working capital
in the future to support higher sales levels throughout the next year.
Investing activities in the year ended December 31, 1998 used cash of $2.7
million, including $2.6 million for plant and other capital improvements
including the addition of 20,000 square feet to a trailer production facility at
a cost of $467,000 and $290,000 in development costs for the Vantare sales
facility, which is discussed further below. The Company also used cash of
$374,000 in connection with the acquisition of the assets of Mitchell Motorcoach
Sales in May, 1998, which is more fully described in Note 11 of the financial
statements, including property and equipment valued at $575,000. The facility
used by Mitchell is leased under the terms of an operating lease. During the
year, the Company purchased aircraft at a cost of $2.9 million and sold aircraft
for net proceeds of $3.1 million. The Company's investment in aircraft for
resale of $6.7 million at December 31, 1998 is not anticipated to change
significantly in the foreseeable future. During the year, the Company also
realized cash proceeds of $291,000 from the partial sale of idle facilities as
described in Note 3 to financial statements.
Financing activities provided net cash of $13.0 million, primarily
including net borrowings of $5.6 million on the revolving line of credit and
$6.7 million on the wholesale financing line. In connection with the purchase of
the assets of Mitchell Motorcoach Sales, Inc., the Company issued 219,551 shares
of common stock with aggregate value of $2.0 million and assumed notes payable
of $7.3 million. These acquired notes payable were then refinanced with
borrowings of $4.8 million on the Company's wholesale line of credit and $2.5
million on the bank line of credit.
<PAGE>
In September, 1998, the Company entered into a Revolving Loan and Security
Agreement with Firstar Financial Services Division of Firstar Bank Milwaukee,
N.A. and in October, 1998, the Company paid off all of its revolving credit and
term obligations with Firstar Bank Iowa, N.A. The new agreement provides a total
credit facility of $34 million, including a working capital line limit of $23
million based on levels of eligible receivables and inventory, together with
various term notes totaling $11.0 million for existing and future equipment and
real estate projects. These borrowings bear an interest rate of prime less .75%
(7.00% at December 31, 1998). The maturity date of the revolving loan agreement
is September 24, 2002, unless renewed and extended by the parties. The
agreement, amended as of December 31, 1998, contains covenants which limit
capital expenditures, total liabilities in relation to defined tangible net
worth and total fixed charges in relation to defined EBITDA. There was $17.9
million borrowed against this agreement as of December 31, 1998. The company has
available through Firstar Financial Services various term notes totalling $3
million as future borrowings for real estate projects and equipment. There were
no borrowings on these notes at December 31,1998.
The Company also has a wholesale floor plan agreement with Deutsche
Financial Services to provide up to $23.7 million in financing for new and used
motorcoaches held in inventory. This agreement includes covenants requiring
maintenance of defined levels of tangible net worth, leverage and working
capital. At December 31, 1998, $17.5 million was borrowed against this line.
In November, 1998, the Company entered into a construction contract in the
amount of $2.9 million for the development and construction of a sales facility
on land previously purchased near the Company's Sanford, Florida location. This
project is expected to be completed during the second quarter of 1999 and will
be expanded to include a service center at an additional cost of approximately
$800,000. An agreement was also entered into with First Union Bank to provide
$4.0 million in interim construction and long-term mortgage financing for the
sales facility. The interest rate on this facility is based on the one-month
LIBOR rate plus 1.8% (7.42% at December 31, 1998). The Company reduced the risk
related to unfavorable fluctuations in this floating interest rate by entering
into an interest rate swap in the notational amount of the financing provided,
which fixed the effective interest rate of the loan at 7.34% over a five year
term. Interest only is payable on this facility during the construction period;
thereafter, it will be repayable in equal monthly payments of principal and
interest based on a 15 year amortization, with the remaining balance due
November, 2003.
The Company believes that its current cash balances, cash flow generated
from operations and available borrowing capacity will be sufficient to fund
operations and capital requirements for the next year.
As discussed in Note 6 to financial statements, the Company is contingently
liable under certain dealer floor plan and retail financing arrangements. These
contingent liabilities total approximately $17 million at December 31, 1998.
Also, the Company is self-insured for a portion of certain health benefit and
workers' compensation insurance claims. At December 31, 1998 the Company's
maximum annual claim exposure under these programs is approximately $4 million.
The Company has obtained an irrevocable standby letter of credit in the amount
of $1.2 million in favor of the workers compensation claim administrator.
The Company has made a commitment to the City of Cresco to construct a
hanger facility at a cost of approximately $300,000 as part of an airport
expansion project expected to be completed in 1999. In 1998, the Company
indefinitely deferred previously announced plans to build a warehouse facility
for raw material storage at its Cresco location.
In October, 1997, the Company signed a joint venture agreement with GMR
Marketing to form Featherlite/GMR Sports Group, LLC. The joint venture is
focusing on developing promotional events and implementing marketing strategies
in the rapidly growing motorsports industry. It is not expected that this
venture will require significant capital from the Company to maintain its
operations.
The Company leases certain office and production facilities and vehicles
under various leases that expire at varying dates through fiscal year 2011 as
described more fully in Note 6 to the financial statements. Minimum lease
payments for 1999 are expected to total $828,000.
For the foreseeable future, the Company does not plan to pay dividends but
instead will follow the policy of reinvesting earnings in order to finance the
expansion and development of its business. As discussed in Note 5 to financial
statements, the Company is a party to certain loan agreements which prohibit the
payment of dividends without the lender's consent.
<PAGE>
Balance Sheets
- -------------------------------------------------------------------------------
Featherlite, Inc.
Consolidated Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
(In thousands) 1998 1997
--------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 188 $ 1,632
Trade accounts receivable 10,181 7,050
Refundable income taxes 151 -
Inventories 61,373 39,664
Prepaid expenses 1,522 1,110
Deferred taxes 1,107 824
--------------------------
Total current assets 74,522 50,280
--------------------------
PROPERTY AND EQUIPMENT:
Land and improvements 3,042 2,098
Building and improvements 8,887 7,954
Machinery and equipment 11,763 10,408
Accumulated depreciation (7,824) (6,280)
--------------------------
Net property and equipment 15,868 14,180
--------------------------
GOODWILL AND OTHER ASSETS 16,398 11,048
--------------------------
$106,788 $ 75,508
==========================
<PAGE>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,241 $ 1,173
Other notes payable 17,936 6,515
Trade accounts payable 18,221 11,984
Accrued liabilities 5,720 4,510
Customer deposits 2,241 3,585
Income taxes payable - 870
--------------------------
Total current liabilities 45,359 28,637
--------------------------
LONG-TERM DEBT:
Bank line of credit 17,939 9,800
Other debt, net of current maturities 12,975 12,275
--------------------------
Total long term debt 30,914 22,075
--------------------------
DEFERRED GRANT INCOME 164 237
DEFERRED INCOME TAXES 808 682
--------------------------
CONTINGENCIES AND COMMITMENTS (Note 6)
SHAREHOLDERS' INVESTMENT
Common stock 16,236 14,220
Additional paid-in capital 4,062 4,062
Retained earnings 9,245 5,595
--------------------------
Total shareholders' investment 29,543 23,877
--------------------------
$106,788 $ 75,508
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Statements of Operations and Shareholders Investments
- -------------------------------------------------------------------------------
Featherlite, Inc.
Consolidated Statements of Operations
For the years ended December 31, 1998, 1997 and 1996 (In thousands, except per
share data)
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
<S> <C> <C> <C>
Net sales $ 190,874 $ 134,387 $ 99,329
Cost of sales 160,364 111,764 84,643
---------------------------------------------
Gross profit 30,510 22,623 14,686
Selling, general and administrative expenses 21,999 15,794 12,372
Amortization of intangibles 386 204 120
---------------------------------------------
Income from operations 8,125 6,625 2,194
---------------------------------------------
Other income (expense):
Interest expense (2,961) (1,800) (1,450)
Grant income 73 73 73
Gain on aircraft and other sales 133 264 60
Other income, net 617 309 527
---------------------------------------------
Total other income (expense) (2,138) (1,154) (790)
---------------------------------------------
Income before taxes 5,987 5,471 1,404
Provision for income taxes 2,337 2,189 562
---------------------------------------------
Net income $ 3,650 $ 3,282 $ 842
=============================================
Net income per share (basic and diluted) $ 0.56 $ 0.52 $ 0.13
=============================================
Weighted average number of common
shares outstanding (basic) 6,462 6,255 6,106
=============================================
Weighted average number of
shares outstanding (diluted) 6,559 6,314 6,107
=============================================
</TABLE>
<PAGE>
Consolidated Statements of Shareholders' Investment For the years ended December
31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
--Common Stock--
-------------------------
Outstanding Additional Retained
Shares Amount Paid in Capital Earnings
------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1995 5,955 $12,420 $4,062 $1,471
Net income for the period 842
Issuance of common stock 300 1,800
------------------------------------------------------------
Balance December 31, 1996 6,255 $14,220 $4,062 $2,313
Net income for the period 3,282
------------------------------------------------------------
Balance December 31, 1997 6,255 $14,220 $4,062 $5,595
Net income for the period 3,650
Issuance of common stock 220 2,016
------------------------------------------------------------
Balance December 31, 1998 6,475 $16,236 $4,062 $9,245
============================================================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
Statement of Cash Flows
- -------------------------------------------------------------------------------
Featherlite, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $ 3,650 $ 3,282 $ 842
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 2,121 1,610 1,454
Trailers exchanged for advertising, net of amortization (132) (410) (144)
Grant income (73) (73) (73)
Deferred taxes 152 (260) 92
Gain on sales of aircraft and other property (133) (264) (60)
Changes in current operating items, net of effect of
business acquisitions
Trade accounts receivable (3,028) (268) (1,150)
Refundable income taxes (151) - 466
Inventories (10,279) (14,429) (285)
Prepaid expense (144) 104 (148)
Trade accounts payable (278) 2,208 (1,999)
Accrued liabilities 616 1,400 1,306
Customer deposits (3,197) 1,428 (755)
Income taxes payable (870) 630 240
-------------------------------------------
Net cash used for operations (11,746) (5,042) (214)
-------------------------------------------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Acquisition of business (374) - 231
Investment in joint venture, net of equity in earnings 9 (11) -
Purchases of property and equipment (3,034) (2,973) (1,543)
Proceeds from sale of equipment 196 57 79
Sale of idle facilities 291 - -
Purchase of aircraft for resale (2,901) (6,839) -
Proceeds from sale of aircraft 3,074 3,166 2,789
-------------------------------------------
Net cash from (used for) investing activities (2,739) (6,600) 1,556
-------------------------------------------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Short-term debt increase 4,157 4,288 140
Proceeds from long-term debt and grants 93,652 20,941 6,106
Repayment of long-term debt (84,772) (12,211) (8,143)
Net proceeds from issuance of common stock 4 - -
-------------------------------------------
Net cash from (used for) financing activities 13,041 13,018 (1,897)
-------------------------------------------
Net cash increase (decrease) for period (1,444) 1,376 (555)
Cash, beginning of the period 1,632 256 811
-------------------------------------------
Cash, end of the period $ 188 $ 1,632 $ 256
============================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
Notes to Financial Statements
- -------------------------------------------------------------------------------
FEATHERLITE, INC.
Notes To Consolidated Financial Statements
Note 1. Nature of Business
Featherlite, Inc. (The Company) is engaged in the manufacturing and distribution
of various types of specialty trailers and luxury motorcoaches as well as
related parts and accessories. The trailers are primarily sold at wholesale to
authorized dealers throughout the United States and Canada. Dealer terms and
conditions for business are defined by standard agreements with each authorized
dealer. The luxury motorcoaches are sold directly by the Company to end user
customers. The Company is also involved in the purchase and resale of commercial
type aircraft used for business purposes.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, Featherlite Aviation
Company. All material inter-company accounts and transactions are eliminated in
consolidation.
Fair Values of Financial Instruments: The carrying values of cash, accounts
receivable and payable, short-term debt and accrued liabilities approximate fair
value due to the short-term maturities of these assets and liabilities. The
carrying amount of long term debt, including current maturities, approximates
the fair value of long-term debt because the related interest rates either
fluctuate with the lending bank's current prime rate or approximate current
interest rates for debt of a similar nature and maturity.
Financial Statement Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
<PAGE>
Cash: At December 31, 1998 and 1997, the Company had cash with a financial
institution in excess of the Federal Deposit Insurance Corporation insurance
coverage. The Company has performed an evaluation of the relative credit
standing of this financial institution and believes it has limited its credit
exposure accordingly.
Inventories: Inventories are stated at lower of first-in, first-out (FIFO) cost
or market and include materials, labor and overhead costs. Inventories were as
follows at December 31, 1998 and 1997.
(In thousands)
1998 1997
------- -------
Raw Materials $12,571 $10,052
Work in Progress 18,817 11,815
Finished Trailers/Motorcoaches 29,985 17,797
------- -------
Total $61,373 $39,664
======= =======
Aircraft Held for Resale: Aircraft held by the Company for resale are stated at
cost. Charges for depreciation are not taken, but the Company periodically
evaluates the aircraft's net realizable value and, if necessary, adjusts the
carrying value by charges to operations. Gain or loss on the sale of aircraft is
included in operations during the period in which the aircraft are sold.
Aircraft held by the Company for resale are classified as noncurrent as prior
history indicates that the aircraft may not be sold within the next twelve
months.
Property and Equipment: Property and equipment are capitalized at cost, while
repair and maintenance items are charged to current operations. Depreciation is
provided for financial reporting purposes using straight-line and accelerated
methods over estimated useful lives of 31 to 39 years for building and
improvements and 5 to 7 years for machinery and equipment.
Goodwill and Long-lived Assets: The Company assesses long-lived assets for
impairment under FASB Statement No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of." Under those
rules, property and equipment, goodwill associated with assets acquired in a
purchase business combination, idle facilities held for sale and any other
long-lived assets are included in impairment evaluations when events or
circumstances exist that indicate the carrying amount of those assets may not be
recoverable.
<PAGE>
Product Warranty: The Company's products are covered by product warranties
ranging from one to six years after date of purchase by the consumer. At the
time of sale, the Company recognizes estimated warranty cost, based on prior
history and expected future claims, by a charge to operations.
Cash Flow Information: Cash payments for interest were $2,810,000, $1,675,000,
and $1,461,000 for the years ended December 31, 1998, 1997, and 1996,
respectively. Cash payments for income taxes were $3,206,000 in 1998, $1,819,000
in 1997, and $143,000 in 1996. Cash provided by (used for) acquisition of a
business in 1998, 1997 and 1996 was as follows (in thousands):
1998 1997 1996
---- ---- ----
Fair Value of Assets Acquired $(18,639) $ - $(9,412)
Liabilities Assumed 16,253 - 7,843
Issuance of Common Stock 2,012 - 1,800
---------------------------
Cash provided (used) $ (374) $ - $ 231
===========================
Revenue Recognition: The Company recognizes revenue, net of all anticipated
discounts, when the title to the trailer or motorcoach passes, normally upon
completion of production and issuance of an invoice and the Manufacturer's
Statement of Origin.
Comprehensive Income: As of January 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires other
comprehensive income to include foreign currency translation adjustments,
unrealized gains and losses on marketable securities and minimum pension
liability adjustments. The December 31, 1998 financial statements do not reflect
any items of comprehensive income.
Deferred Grant Income: The Company recognizes revenue related to grants received
from various governmental units over the life of the assets to which the funding
relates or during the period in which the expense occurs for which grants were
received. Revenue recognition begins when there is reasonable assurance that all
conditions of the grants, principally job creation goals, have been met.
Income Taxes: Deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
Earnings Per Common Share: Earnings per basic common share are computed based
upon the weighted average number of common shares outstanding during each year.
Dilutive per share amounts assume conversion, exercise or issuance of all
potential common stock instruments (stock options and warrants as discussed in
Note 9) unless the effect is to reduce a loss or increase income per share.
Stock Options: The Company applies APB 25 "Accounting for Stock Issued to
Employees" in accounting for stock options and presents in Note 9 pro forma net
earnings as if the accounting prescribed in SFAS 123 "Accounting for stock-based
compensation" had been applied.
Segment Information: Effective January 1, 1998, the Company adopted FASB
Statement No. 131, Disclosures about Segment of an Enterprise and Related
Information. Statement No. 131 superseded FASB Statement No. 14, Financial
Reporting for Segments of a Business Enterprise. Statement No. 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of Statement No. 131 did not affect results of operations or
financial position, or the disclosure of segment information. See Note 11 for
complete disclosures about the Company's operating segments.
<PAGE>
Note 3. Goodwill and Other Assets
Goodwill and other assets consist of the following
(In thousands)
1998 1997
---- ----
Goodwill, net $ 9,126 $ 3,461
Aircraft held for resale (Note 5) 6,676 6,726
Idle Facilities 231 522
Advertising 363 328
Investment in Joint Venture 2 11
------- -------
Total $16,398 $11,048
======= =======
Goodwill: As discussed in Note 10, the excess of the total acquisition cost of
Vantare International, Inc., and Mitchell Motorcoach Sales, Inc., and other
prior acquisitions over the fair value of the net assets acquired of $9,699,000
is being amortized on a straight-line basis over periods of up to 20 years.
Amortization was $386,000 in 1998, $198,000 in 1997 and $108,000 in 1996 and
accumulated amortization was $696,000 and $310,000 at December 31, 1998 and
1997, respectively.
Aircraft Held for Resale: The Company is a licensed aircraft dealer and deals in
business class aircraft. The Company's net aircraft transactions included
proceeds of $3.1 million and $3.2 million from the sale of aircraft and $2.9
million and $6.8 million from aircraft purchases in 1998 and 1997, respectively.
Idle Facilities: The Company owns land and buildings in Grand Meadow, Minnesota
that was previously used as its corporate headquarters and delivery/maintenance
facility. The net book value of the facilities have been reclassified from
property and equipment to other assets and a provision has been made to reduce
the facility to its expected realizable value. During 1998, the Company entered
into agreements to sell a substantial portion of the property included in idle
facilities. The aggregate purchase price for the property sold totaled $445,000,
including $289,000 paid in cash at closing with the remaining balance of
$156,000 to be paid in monthly installments of $1,536, including interest at
8.5% until September, 2003, when the balance is then due. No gain or loss was
realized in this transaction.
<PAGE>
Advertising and Other: The Company exchanged trailers and coaches (total sales
value $416,000 in 1998, $669,000 in 1997, and $276,000 in 1996) for future
personal service, promotional and advertising services of an equivalent value.
These contracts were capitalized and are being amortized over the period the
services will be rendered. Amortization of these agreements to advertising
expense was $287,000 in 1998, $254,000 in 1997, and $315,000 in 1996.
Advertising expense was $1,958,000 in 1998, $1,441,000 in 1997, and $1,299,000
in 1996.
Investment in Joint Venture. In 1997, the Company signed a joint venture
agreement with GMR Marketing to form the Featherlite/GMR Sports Group, LLC. The
joint venture will focus on developing promotional events and implementing
marketing strategies in the motorsports industry. The Company's investment at
December 31, 1998 was not significant.
Note 4. Income Tax Matters
The components of the income tax provision charged to operations in 1998, 1997
and 1996 are as follows (in thousands):
1998 1997 1996
---- ---- ----
Current
Federal $1,962 $2,145 $425
State 223 304 45
------ ------ ----
2,185 2,449 470
Deferred
Federal 137 (229) 82
State 15 (31) 10
------ ------ ----
152 (260) 92
------ ------ ----
Total $2,337 $2,189 $562
====== ====== ====
A reconciliation of the provision for income taxes at the federal statutory rate
to the provision for income taxes in the financial statement is as follows (in
thousands):
1998 1997 1996
---- ---- ----
Provision at statutory rate $2,036 $1,910 $478
State income taxes, net of
Federal income tax benefit 187 253 60
Other 114 26 24
------ ------ ----
Total $2,337 $2,189 $562
====== ====== ====
<PAGE>
Deferred tax assets and liabilities consist of the following components as of
December 31, 1998 and 1997:
1998 1997
Deferred Tax Liabilities:
Depreciation $ 808 $ 682
-------------------------
Deferred Tax Assets:
Accrued expenses 480 383
Accrued warranty reserve 289 209
Inventory allowances 261 168
Receivable allowances 77 64
-------------------------
1,107 824
-------------------------
Net deferred tax asset $ 299 $ 142
=========================
Note 5. Financing Arrangements
Other Notes Payable: At December 31, 1998 and 1997, other notes payable
consisted of the following (in thousands):
1998 1997
---- ----
Wholesale floor plan line
of credit* $17,473 $6,072
Insurance premiums;
interest at 6.0%, payable
in monthly installments 463 443
--------------------------
$ 17,936 $ 6,515
==========================
*The Company has a wholesale finance agreement with a financial services company
for a $23.7 million line of credit to finance completed new and used
motorcoaches held in inventory. Amounts borrowed are limited to defined
percentages of eligible inventory. Borrowings bear interest at prime (7.75% at
December 31, 1998) and are secured by the motorcoaches financed and other assets
of the Company. The agreement includes covenants requiring maintenance of
defined levels of tangible net worth, leverage and working capital.
The agreement is subject to renewal on October 31, 1999.
<PAGE>
Bank Lines of credit: During 1997, the Company had a Credit Agreement with
Firstar Bank Iowa, N.A. under which it could borrow up to the lessor of
$17,500,000 or a defined percentage of eligible trade accounts receivable,
inventory, and fixed assets. Borrowings under this line of credit, which bore
interest at prime less .5% (8.0% at December 31, 1997) were $9,800,000 at
December 31, 1997. In 1998, the Company entered into a Revolving Loan and
Security Agreement with Firstar Financial Services, a division of Firstar Bank
Milwaukee, WI., and paid off all of its borrowings under the Credit Agreement.
The new Agreement provides a working capital line of credit equal to the lesser
of $23,000,000 or a defined percentage of eligible trade accounts receivable and
inventory. Borrowings under this agreement, which bear interest at prime less
.75% (7.00% at December 31, 1998), are secured by substantially all assets of
the Company. The Agreement was amended to include covenants requiring
maintenance of defined levels of tangible net worth, earnings before interest,
taxes, depreciation and amortization; and fixed charge coverage ratio.
Borrowings under this line of credit were $17,939,000 at December 31, 1998.
These borrowings are classified as long-term debt as the agreement matures and
is subject to renewal on September 24, 2002.
Other Long-term Debt.
Other long term debt at December 31, 1998 and 1997, consisted of the following:
(In thousands)
1998 1997
----------------
Bank notes payable; interest at
prime less .75% (7% at December 31,1998)
payable in varying monthly installments
plus interest through 2008; contains
same collateral and covenant provisions
as working capital line of credit. $7,817 $6,492
Bank notes payable; interest at
prime plus .75%, adjusted quarterly (8.50%
at December 31, 1998); payable in varying
monthly installments with interest
through January, 2001; collateralized
by aircraft 5,215 5,457
Notes and capitalized leases to
banks and others, interest to 11.5%,
payable in varying monthly
installments through 2003;
collateralized by real estate. 1,184 1,499
----------------
Total 14,216 13,448
Less current maturities (1,241) (1,173)
----------------
$12,975 $12,275
================
Annual maturities of total long-term debt during the five years subsequent to
December 31, 1998 are (in thousands): 1999 - $1,241; 2000 - $4,093; 2001 -
$3,577; 2002 - $19,107; and 2003 - $1,683.
<PAGE>
Note 6. Commitments and Contingencies
Pursuant to dealer inventory floor plan financing arrangements, the Company
may be required, in the event of default by a financed dealer, to repurchase
products from the financial institutions or to reimburse the institutions for
unpaid balances including finance charges, plus costs and expenses. The Company
was contingently liable under these arrangements for a maximum amount of
$17,209,000 at December 31, 1998.
The Company has three separate agreements which provide approximately
$870,000 for job training purposes. The amounts are to be repaid, together with
interest, over a ten year period from state withholding taxes on employees at
the Company's Iowa facilities. The Company may be required to provide funds for
the repayment of these training credits if sufficient withholding and unused
training funds are not available.
The Company is partially self-insured for a portion of certain health
benefit and workers' compensation insurance claims. The Company's maximum annual
claim exposure under these programs is approximately $4.0 million, including
$1,077,000 accrued for estimated unpaid claims at December 31, 1998. The Company
has obtained an irrevocable standby letter of credit in the amount of $1,245,000
in favor of the workers compensation claims administrator to guaranty settlement
of claims.
The Company leases certain office and production facilities under various
operating leases that expire at varying dates through 2011. Rental expense under
these operating leases for the years ended December 31, 1998, 1997 and 1996 was
approximately $774,000, $327,000, and $68,000. The approximate annual minimum
future lease payments under these operating leases for the five years after
December 31, 1998 are as follows (in thousands): 1999 - $828; 2000 - $710; 2001
- - $656; 2002 - $648; 2003 - $640; and $3,218 thereafter.
The Company in the course of its business has been named as a defendant in
various legal actions. Most, but not all, of such actions are product liability
or workers' compensation claims in which the Company is covered by insurance
subject to applicable deductibles. Although the ultimate outcome of such claims
cannot be ascertained at this time, it is the opinion of management, after
consultation with counsel, that the resolution of such suits will not have a
material adverse effect on the financial position of the Company, but may be
material to the Company's operating results for any particular period.
In November 1998 the Company entered into a contract in the aggregate
amount of $2,878,000 for the development and construction of a sales facility on
land previously purchased near the Company's Sanford, Florida location. This
phase of the project will be completed during the second quarter of 1999 and
will be expanded to include a service center at an approximate cost of $800,000.
This project will be financed with borrowed funds from First Union Bank which
will be repayable in equal monthly installments based on a 15 year amortization,
with the remaining balance due November, 2003. The company also entered into an
interest rate swap for the notional amount of the financing on this project to
fix the effective interest on this borrowing at 7.34% over a five year term.
Note 7. Deferred Grant Income
Deferred grant income consists of forgivable loans (grants) in an aggregate
amount of $2,030,000 provided to the Company by various governmental units to
assist with the establishment of the Company's headquarters and production
facility in Cresco, Iowa and its Nashua, Iowa production facility. These loans
are wholly or partially forgivable based on fulfillment and retention of job
creation goals through June, 1999. These grants are being recognized as income
as they are earned. Accumulated income recognized for these grants was
$1,865,000 at December 31, 1998, $1,792,000 at December 31, 1997, and $1,719,000
at December 31, 1996.
Note 8. Related Party Transactions
The Company recorded sales to authorized Featherlite dealers and
Featherlite Credit, that are related entities under common ownership, of
$3,268,000, $2,326,000, and $3,154,000 in 1998, 1997, and 1996, respectively.
The Company had a $514,000 receivable from these related parties at December 31,
1998.
The Company has leased various equipment from certain shareholders during
current and prior periods. Payments related to these leases totaled $24,000 in
1998, $57,000 in 1997, and $91,000 in 1996.
<PAGE>
In 1997 and 1996, the Company entered into agreements with Featherlite
Credit Corporation, related under common ownership, to compensate it for various
credit related services it provided for the Company, including the development
of the Featherlite Master Lease program. Expenses under this agreement which is
no longer in effect totaled $42,000 in 1997, and $100,000 in 1996. Featherlite
Credit reimbursed the Company $58,000, $96,000, and $116,000 for salaries and
other costs paid by the Company in 1998, 1997 and 1996, respectively.
Note 9. Shareholders' Investment
Capitalization:. The Company's authorized capital is 40,000,000 shares of no par
Common Stock and 10,000,000 shares of undesignated stock. In 1994, the Company
completed an initial public offering of 1,955,000 shares of Common Stock. The
underwriter has a warrant to purchase 120,000 shares at a price of 120 percent
of the initial public offering price of $6.00 per share. This warrant expires in
October, 1999.
Stock option Plan: At December 31, 1998, the Company reserved 1,100,000 shares
of Common Stock for issuance as options under the 1994 stock option plan (the
Plan). These options may be granted to employees and directors at the discretion
of the Board of Directors, which may grant either incentive stock options or
non-statutory stock options.
All incentive options must be granted at no less than 100 percent of the
fair market value of the stock on the date of grant, (110 percent for employees
owning more than 10 percent of fair market value on the date of grant.) The
options expire at varying dates generally not to exceed ten years from date of
grant and are non-transferable.
Grants under the Plan are accounted for using APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under the stock option plan. Had compensation cost for the stock
option plan been based on the grant date fair values of awards (the method
prescribed by the Statement of Financial Accounting Standard No. 123) reported
net income and earnings per share would have been reduced to the pro forma
amounts shown below.
<PAGE>
1998 1997 1996
---- ---- ----
Net income (000's)
As reported $3,650 $3,282 $ 842
Pro forma 3,263 3,164 728
----------------------------
Basic earnings per share
As reported $ .56 $ . 52 $ .13
Pro forma .51 .51 .12
----------------------------
Diluted earnings per share
As reported $ .56 $ .52 $ .13
Pro forma .50 .50 .12
----------------------------
The fair value of each option has been estimated at the grant date using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1998, 1997, and 1996:
1998 1997 1996
---- ---- ----
Dividend Rate 0% 0% 0%
Price Volatility 49.0% 47.5% 48.5%
Risk free interest rate
- 5 year options 5.5% 6.3% 6.3%
Risk free interest rate
- 10 year options 4.7% 6.5% 6.8%
A summary of the status of the Plan at December 31, 1998, 1997 and 1996 and
changes during the years ended on those dates is as follows:
Weighted Average
1998 Shares Exercise Price
---- ----------------------------
Outstanding,
Beginning of year 311,380 $6.17
Granted 218,500 6.24
Exercise/forfeited (500) 6.00
----------------------------
Outstanding, end of year 529,380 $6.20
Exercisable at end of year 308,180
----------------------------
Weighted-average fair value
per share of options granted
during the year $4.28
----------------------------
<PAGE>
Weighted Average
1997 Shares Exercise Price
---- ----------------------------
Outstanding,
Beginning of year 249,380 $6.02
Granted 62,000 6.77
Exercise/forfeited - -
----------------------------
Outstanding, end of year 311,380 $6.17
Exercisable at end of year 228,380
----------------------------
Weighted-average fair value
per share of options granted
during the year $3.87
----------------------------
Weighted Average
1996 Shares Exercise Price
---- ----------------------------
Outstanding,
Beginning of year 159,168 $6.28
Granted 90,212 5.54
Exercise/forfeited - -
----------------------------
Outstanding, end of year 249,380 $6.02
Exercisable at end of year 158,755
----------------------------
Weighted-average fair value
per share of options granted
during the year $3.74
----------------------------
<PAGE>
At December 31, 1998, the options outstanding have exercise prices ranging
from $5.50 to $10.00 and a weighted average remaining contractual life of 7.3
years. All but 18,668 shares are exercisable at prices ranging from $5.50 to
$7.25. Substantially all of the non-vested options are expected to eventually
vest.
Earnings Per Share:
The weighted-average number of shares of common stock used to compute the basic
earnings per share was increased by 97,517, 59,354, and 1,004 in 1998, 1997, and
1996, respectively, for the assumed exercise of the stock options and warrants,
in computing the diluted per share data. Basic and diluted earnings per share,
as calculated under the Statement of Financial Accounting Standard No. 128, are
not materially different than primary and fully diluted earnings per share as
previously reported for all prior periods.
Note 10. Business Combinations
In May, 1998, the Company acquired substantially all the assets of Mitchell
Motorcoach Sales, Inc. in exchange for 219,551 shares of Company common stock
with an aggregate value of $2.0 million and the assumption of certain Mitchell
Motorcoach Sales liabilities. Additional Company common stock with an aggregate
value of $4.0 million may be issued if this newly formed Vogue Division of the
Company achieves certain defined earnings levels through December 31, 2001. This
acquisition was accounted for as a purchase and, accordingly, results of
operations of the newly formed division, have been included in the Company's
operating statements since the acquisition date. The following unaudited pro
forma summary presents consolidated results of operations of the Company for the
year ended December 31, 1998 and 1997 as if the business combination had
occurred on January 1, 1997 (in thousands, except for per share data):
1998 1997
----------------------
Revenue $203,612 $169,040
Net earnings 3,372 2,703
Earnings per share .51 .41
======================
The purchase price was allocated on the basis of the estimated fair value
of assets acquired and liabilities assumed with the remaining excess purchase
price of $6,051,000 ($10,051,000 if additional shares issued) to be amortized
over 20 years.
In July, 1996, the Company acquired all the assets of Vantare
International, Inc., a privately-held converter of purchased bus shells into
luxury motorcoaches, in exchange for 300,000 restricted shares of the Company's
common stock with a value of approximately $1.8 million and the assumption of
certain liabilities. An additional 100,000 shares may be issued pending the
attainment of certain defined net earnings, as determined annually, through
December 31, 2000. Twenty - five thousand (25,000) of these additional shares
were earned for the year 1998 and will be issued in 1999. This acquisition was
accounted for as a purchase and, accordingly, results of operations of Vantare
have been included in the accompanying statement of operations since the
acquisition date. The Company recorded intangible assets of $3.2 million,
including goodwill, tradename and certain other rights, which are being
amortized over 20 years.
<PAGE>
Note 11. Segment Reporting
The Company has two principal business segments that manufacture and sell
trailers and motorcoaches to many different markets, including recreational,
entertainment, and agriculture. The Company's sales are not materially dependent
on a single customer or small group of customers.
Information on business segments is as follows:
1998 1997 1996
-------------------------------
Net sales to unaffiliated customers
Trailers $113,017 $99,703 $84,421
Motorcoaches 77,857 34,684 14,908
-------------------------------
Total net sales $190,874 $134,387 $99,329
-------------------------------
Income (loss) from operations
Trailers $9,989 $11,034 $5,680
Motorcoaches 3,949 813 775
General corporate (5,813) (5,222) (4,261)
Other income (expense), net (2,138) (1,154) (790)
-------------------------------
Total income before income taxes $5,987 $5,471 $1,404
-------------------------------
Interest expense
Trailers $920 $839 $882
Motorcoaches 1,601 574 193
General corporate 440 387 375
-------------------------------
Total interest expense $2,961 $1,800 $1,450
-------------------------------
Provision for income taxes
Trailers $3,516 $4,108 $1,939
Motorcoaches 1,060 131 291
General corporate (2,239) (2,050) (1,668)
-------------------------------
Total provision for income taxes $2,337 $2,189 $562
-------------------------------
<PAGE>
Identifiable assets
Trailers $41,605 $39,491 $31,708
Motorcoaches 54,430 21,882 13,646
General corporate assets 10,753 14,135 8,180
-------------------------------
Total assets as reported $106,788 $75,508 $53,534
-------------------------------
Capital expenditures
Trailers $1,120 $1,382 $1,034
Motorcoaches 881 588 18
Corporate 1,033 1,003 491
-------------------------------
Total capital expenditures $3,034 $2,973 $1,543
-------------------------------
1998 1997 1996
-------------------------------
Depreciation and amortization
Trailers $1,072 $713 $ 945
Motorcoaches 546 270 106
Corporate 503 627 403
-------------------------------
Total depreciation and
amortization $2,121 $1,610 $1,454
-------------------------------
Information of geographic information:
Revenues 1998 1997 1996
-------------------------------
United States $186,197 $129,569 $94,660
Canada and Other Regions 4,677 4,818 4,669
-------------------------------
Consolidated $190,874 $134,387 $99,329
===============================
Long-lived assets
United States $32,266 $25,228 $19,685
Canada and Other Regions - - -
-------------------------------
Consolidated $32,266 $25,228 $19,685
===============================
The accounting policies applied to determine segment information are the
same as those described in the summary of significant accounting policies.
Management evaluates the performance of each segment based on profit or
loss from operations before income taxes, exclusive of non-recurring gains or
losses.
<PAGE>
Report of Independent Auditors
To the Board of Directors
Featherlite, Inc.
Cresco, Iowa
We have audited the accompanying consolidated balance sheets of Featherlite,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of operations, changes in shareholders' investment, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Featherlite,
Inc. as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Rochester, Minnesota
February 8, 1999
<PAGE>
CORPORATE OFFICERS
Conrad D. Clement
President and Chief
Executive Officer
Jeffery A. Mason
Chief Financial Officer
Tracy J. Clement
Executive Vice President
Gary H. Ihrke
Vice President Operations and Secretary
Eric P. Clement
Vice President Sales
Steven J. Sheldon
Vice President Specialty
Transporters
Brendan Delehanty
Vice President Vogue
Division
Larry D. Clement
Treasurer
Norm Allen
Vice President Vantare Division
Charles Dorrity
Vice President Cresco
Operations
<PAGE>
BOARD OF DIRECTORS
Conrad D. Clement
Chairman of the Board
Jeffery A. Mason
Tracy J. Clement
Donald R. Brattain (1)(2)
President, Brattain & Associates - Private Investment Firm
Thomas J. Winkel (1)(2)
Financial and Management Consultant
Kenneth D. Larson (1)(2)
Retired President and Chief Operating Officer
Polaris Industries, Inc.
John H. Thomson (1)(2)
Chairman
Cresco Union Savings Bank
(1) member compensation committee
(2) member audit committee
REGISTRAR AND STOCK TRANSFER AGENT
Firstar Trust Company
Milwaukee, WI
INDEPENDENT AUDITORS
McGladrey & Pullen, LLP
Rochester, MN
GENERAL COUNSEL
Fredrikson & Byron, P.A.
Minneapolis, MN
ANNUAL MEETING
The Featherlite, Inc,
annual meeting will take place on May 12, 1999 at Corporate Headquarters at 7
p.m. Plant tours at 4 p.m.
AVAILABILITY OF 10-K
A copy of the Company's 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission will be made available to interested
shareholders without charge upon written request to the Company or by calling
Investor Relations at (319) 547-6000 or fax (319) 547-6099.
STOCK MARKET INFORMATION
The Nasdaq Stock Market Symbol: FTHR As of February 15, 1999, there
were approximately 222 shareholders of record and approximately 2100 beneficial
shareholders.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Annual Report on
Form 10-K of Featherlite Inc. for the year ended December 31, 1998 of our report
on the consolidated financial statements dated February 8, 1999 which appears on
page 26 of the annual report to shareholders for the year ended December 31,
1998.
We also consent to the incorporation by reference in the Registration Statement
on Form S-8 (No. 33-90860) of the Featherlite Inc. 1994 Stock Option Plan and
Registration Statement on Form S-3 (No. 333-65647) of our report, dated February
8, 1999, on the consolidated financial statements of Featherlite Inc., which
report is incorporated by reference in the Annual Report on Form 10-K for the
year ended December 31, 1998.
/s/ McGladrey & Pullen, LLP
Rochester, Minnesota
March 29, 1999
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 188
<SECURITIES> 0
<RECEIVABLES> 10,332
<ALLOWANCES> 0
<INVENTORY> 61,373
<CURRENT-ASSETS> 74,522
<PP&E> 23,692
<DEPRECIATION> (7,824)
<TOTAL-ASSETS> 106,788
<CURRENT-LIABILITIES> 45,359
<BONDS> 30,914
0
0
<COMMON> 16,236
<OTHER-SE> 13,307
<TOTAL-LIABILITY-AND-EQUITY> 106,788
<SALES> 190,874
<TOTAL-REVENUES> 190,874
<CGS> 160,364
<TOTAL-COSTS> 22,385
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<LOSS-PROVISION> 0
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<INCOME-PRETAX> 5,987
<INCOME-TAX> 2,337
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